Copper strike keeps growth modest
Real GDP decelerated to +1.6% in 2016, after +2.3% in 2015. The expectation of seeing a substantial growth recovery in Q1 after important headwinds throughout 2016 did not materialize. In Q1, real GDP grew by only +0.1% y/y (+0.2% q/q), the slowest pace since 2009 and far below our expectations. The negative outcome is almost exclusively explained by the six-week strike at Escondida, the largest copper mine worldwide that produces about 5% of total global copper output. The strike ended in March, without resolution. The Central Bank estimates that the strike dragged down GDP growth by -1pp q/q. This caused a sharp contraction of exports since non-ferrous metals (mostly copper) represent 26% of Chilean exports.
In the coming months, exports should benefit from higher copper prices and a better outlook for global trade. Consumption is showing first signals of revival. However, this will be offset by a continued contraction in the construction sector, higher tax burden for companies (the Retained Taxable Earnings (FUT) have been extended and the corporate tax increased) and increased political uncertainty ahead of the presidential and parliamentary elections due in November. All in all, we expect the economy to expand in 2017 at the same rate as in 2016 (+1.6%), and to accelerate slightly to +2.2% in 2018, still well below the 2010-2015 average of +4.3%.