VZCZCXYZ0024
RR RUEHWEB

DE RUEHSG #0868/01 2591325
ZNR UUUUU ZZH
R 161323Z SEP 09
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC 0038
INFO MERCOSUR COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SANTIAGO 000868 
 
SIPDIS 
STATE PLEASE PASS TO USTR KATE KALUTKIEWICZ 
STATE PLEASE PASS TO FEDERAL RESERVE TOM CONNORS 
TREASURY FOR BLINDQUIST 
COMMERCE FOR KMANN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV ECIN PGOV PREL CI
SUBJECT: CHILE: MONTHLY ECONOMIC HIGHLIGHTS - JULY AND AUGUST 
 
REF: SANTIAGO 648 AND PREVIOUS 
 
¶1.  SUMMARY:  Chile's economy may have passed through the worst of 
the recession, as some macroeconomic indicators show positive 
signs.  The Chilean economy contracted by 4.5% in the second 
quarter of 2009, and economic activity fell again in July and 
August.  However, August's seasonally adjusted economic activity 
showed a slight increase (the first this year) when compared with 
July.  The IMF projects Chile will have the highest 2009 GDP per 
capita in the region.  Chile's economy is the most competitive in 
the region according to the World Economic Forum.  The unemployment 
rate in Chile increased for the eighth period in a row to 10.8%. 
Annual inflation continued to fall to -1%, making it likely that 
Chile will face a period of deflation in 2009.  Chile's Central 
Bank maintained the key interest rate at 0.5% amid signs of 
improving liquidity in financial markets.  China became Chile's 
largest trade partner, and Chile signed an FTA with Turkey.  In the 
first eight months of the year, copper prices rose by 114%, the 
Peso appreciated against the Dollar by 13%, and the stock market 
increased by 32%.  END SUMMARY. 
 
 
 
GDP Contracts in Second Quarter of 2009 
 
--------------------------------------- 
 
 
 
¶2.  In August, the Central Bank reported that Chile's GDP shrank by 
4.5% in the second quarter of 2009 (compared with the same period 
in 2008).  This follows a contraction in GDP of 2.3% in the first 
quarter of 2009.  The Central Bank projects that Chile's GDP will 
shrink between 0.25 and 0.75% in 2009.  Experts predict those 
numbers will be revised in the third or fourth quarter, given that 
many expect a sharper contraction of between 1-2% for the year. 
 
 
 
Economic Activity Shrinks but Shows Positive Signs 
 
--------------------------------------------- ----- 
 
 
 
¶3.  The Central Bank reported that the monthly economic activity 
indicator (Imacec) contracted by 4% in June and 2.7% in July 2009 
compared with the same months in 2008.  This makes ten straight 
months of economic contraction.  Experts, however, believe that 
since April the downward trend in the Imacec has decelerated.  The 
seasonally adjusted Imacec for July 2009 actually showed an 
increase of 0.4% when compared with the month before, the first 
sign of positive growth for the Chilean economy.  The Imacec is 
regarded as a proxy for GDP growth in Chile, as it includes 90% of 
the same goods and services used to calculate GDP. 
 
 
 
GDP Per Capita Expected to Top Region 
 
------------------------------------- 
 
 
 
¶4.  According to IMF projections, Chile is expected to have GDP per 
capita (in purchasing power parity) of $14,461 in 2009.  Although 
lower than the 2008 level, Chile will still have the highest GDP 
per capita in Latin America, followed by Argentina and Mexico.  The 
IMF projects Chile will continue to have the highest GDP per capita 
(PPP) through 2011. 
 
 
 
Chile Remains Most Competitive in Region 
 
---------------------------------------- 
 
 
 
¶5.  The World Economic Forum ranked Chile the 30th most competitive 
 
economy in the world in 2009, a slip from 28th last year.  However, 
Chile remains the most competitive economy in Latin America, 
followed by Puerto Rico at 42nd. 
 
 
 
Unemployment Rises for Eighth Period in a Row 
 
--------------------------------------------- 
 
 
 
¶6.  The National Statistics Institute (INE) reported that the 
national unemployment rate climbed to 10.7% during April - June 
2009 and to 10.8% during May - July 2009.  This makes eight 
straight increases in the national unemployment rate.  In the last 
period, unemployment increased in 12 of Chile's 15 regions, hit 
double digits in 18 of Chile's 33 largest cities (rising above 14% 
in 9 of those cities, including 18.5% in the key port city of 
Valparaiso), and rose to 10.8% in the greater Santiago area. 
 
 
 
Downward Trend in Inflation Resumes 
 
----------------------------------- 
 
 
 
¶7.  The INE also reported that the Consumer Price Index decreased 
0.4% in July and again in August, compared with the preceding 
month.  This marked a return to the negative inflation of previous 
months.  The CPI's annualized growth rate fell to -1% in August. 
The CPI has fallen by 1.6% since the start of 2009, signaling the 
likelihood that Chile will face a period of deflation this year. 
 
 
 
Interest Rate Maintained at Low Level 
 
------------------------------------- 
 
 
 
¶8.  The Central Bank decided to maintain the key interest rate 
(monetary policy rate) at its minimum of 0.5% in August.  This was 
in keeping with a previous announcement by the Bank that the rate 
would remain in effect for a "prolonged" period of time, possibly 
six months.  The Central Bank had cut the rate to 0.5% in July, 
after six previous reductions from a rate of 8.25% in December 
¶2008. 
 
 
 
¶9.  Tight credit conditions in the financial sector seem to be 
easing.  In July, the Superintendency of Banks and Financial 
Institutions - SBIF (the regulatory authority) -reported that the 
average annual interest rate on consumer loans had fallen by 220 
basis points since the start of the year.  This was credited to the 
record-low interest rates maintained by the Central Bank and the 
state-owned BancoEstado's aggressive lending policies, both 
designed to improve access to credit. 
 
 
 
¶10.  In August, the SBIF reported that savings accounts increased 
by 5.26% between January and May of 2009 compared with the same 
period the year before.  In August, the Central Bank reported that 
the interest rate spread between loans and deposits has been 
decreasing, reaching 4.2% (on loans vs. deposits of 30-89 days), 
after highs of 9% at the beginning of the year. 
 
 
 
China Now Chile's Largest Trade Partner 
 
--------------------------------------- 
 
¶10.  The National Customs Service reported that China had become 
Chile's top trading partner based on trade figures between January 
and July of 2009.  The top five trading partners as of July 2009 
were in order of size:  China, the U.S., Brazil, South Korea, and 
Argentina.  Trade with the U.S. had reached approximately $1.2 
billion as of July 2009. 
 
 
 
New FTA with Turkey 
 
------------------- 
 
 
 
¶11.  Chile and Turkey signed a Free Trade Agreement on July 14, 
under which 98% of all goods will be traded duty-free, moving to 
100% within six years.  According to DIRECON, bilateral trade with 
Turkey reached $437 million in 2008, with a $103 million surplus 
for Chile.  This marks Chile's 59th trade agreement (not all are 
FTAs). 
 
 
 
Copper Prices Continue to Move Higher 
 
------------------------------------- 
 
 
 
¶12.  On the London Metals Exchange, copper closed at approximately 
$2.83/pound on September 1.  The price of copper was up 
approximately 114% since the beginning of 2009. 
 
 
 
¶13.  In July, Chile's state copper commission (Cochilco) revised 
its projection for the average price of copper in 2009 (up to 
$1.95/pound from a previous estimate of $1.75).  Cochilco estimates 
Chile will produce 5.41 million metric tons of copper in 2009 (or 
33% of global production).  In 2010, the average price is projected 
to reach $2.10 and Chile is expected to produce 5.75 million metric 
tons (or 35% of global production).  The numbers are credited to 
increasing demand from China and a likely global economic recovery 
by 2010. 
 
 
 
¶14.  Mining Minister Santiago Gonzalez said in July that he expects 
copper prices to average around $2.00/pound for 2009.  Press 
reports in August indicated that because of the rebound in the 
price of copper, mining firms have been able to hire back almost 
60% of employees (7 million) who initially lost their jobs due to 
the economic crisis (12 million).  Chile's state-owned copper 
company's (CODELCO) revenues in the first quarter of 2009 were $772 
million, an 82.4% drop from the same period in 2008, and the worst 
results for CODELCO in five years. 
 
 
 
Chilean Peso Appreciates Against Dollar 
 
--------------------------------------- 
 
 
 
¶15.  On September 1, the observed exchange rate closed at 
approximately 554 Chilean Pesos to 1 U.S. Dollar.  This rate marks 
an appreciation of about 13% from the beginning of 2009. 
 
 
 
Stock Market Gains More Ground 
 
------------------------------ 
 
 
 
¶16.  The IPSA closed at 3132.87 on September 1.  The IPSA is up 
almost 32% for the first 8 months of 2009. 
SIMONS