Chile’s economy declines on biggest mining plunge since 2017

Chile’s economic activity unexpectedly fell for the second straight month in June as a plunge in mining offset gains across other sectors in one of Latin America’s richest nations.

The Imacec index, a proxy for gross domestic product, declined 0.4% from May, compared to the 0.3% increase expected by economists in a Bloomberg survey. Activity gained 3.1% from the prior year, the central bank reported on Friday.

Chilean policymakers are telegraphing more easing ahead as inflation slows toward target and activity evolves according to projections. Factors including lower borrowing costs and expectations of a more business-friendly government after this year’s election are reviving investment. While job creation remains minimal and unemployment is high, Finance Minister Mario Marcel said this week the labor market will mend as the economic recovery gains steam.

Mining tumbled 9.3% in June, according to the central bank, marking the biggest monthly drop since 2017. On the other hand, industry increased 2.2% during the period, while commerce gained 0.7% and services rose 0.4%.

“All told, this is a weak end to the quarter, but largely due to mining volatility. Underlying momentum is intact,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a note. He said consumption is being supported by factors including rising wages, slowing inflation and improving credit conditions.

Central bankers lowered the interest rate to 4.75% on Tuesday in their first reduction of the year. In a statement, policymakers wrote that indicators show private consumption and investment continued to grow in recent months.

Chile’s government got good news on Wednesday when US President Donald Trump spared refined copper from a 50% levy. The red metal is Chile’s top export, and the US is its second-biggest trading partner. Marcel later confirmed those shipments will enter the world’s largest economy tariff-free.

Recent polls for the presidential election show right-wing candidate Jose Antonio Kast now moving ahead as the presumptive favorite. At an event on Thursday, Kast said he’ll propose lowering the corporate tax rate to 20% from 27% while also cutting public spending by US$6 billion in 18 months.

The first round of the presidential election will be on Nov. 16, followed by a likely runoff on Dec. 14.

(By Matthew Malinowski)