Chile Economy Check 2016

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Chile Economy Check 2016

Postby admin » Mon Feb 29, 2016 11:24 am

So, I seen this article in Fortune last night, can not find it now of course, discussing the status of various countries in Latin America. In one, sort of off-handed unexplained line, they lumped Chile's economy in with the likes of Argentina and Brazil as countries that were on the brink of imploding. Now, I have seen a long standing pattern, for whatever reason, with Fortune that throws out articles and bits and pieces slamming Chile, with no data to back them up.

So, I thought I would go look at the numbers as we start 2016, and try and put them in context of the rest of the World right now.

What also had gotten me thinking were these articles this morning:

Goverment debt is the new sub-prime:
http://www.marketwatch.com/story/govern ... 2016-02-26

31% of U.S. goverment debt is student loans:
http://www.breitbart.com/big-government ... ent-loans/

U.S. debt heading to 103% of GDP

So, where does Chile stand in relative to the rest of the neighbors, and the world? This was the best article I found with the most up to date numbers for 2015 and projections going out a few years. In short, not even in the same ball park as the rest of the neighbors, and really not even close to most of the "developed" world debts at around 15-20% debt to GDP:
http://latampm.com/2016/02/16/latam-gov ... spotlight/

Meanwhile we got Chile's January unemployment in at 5.6%. That will likely move now that February is over. This is the time of year the economy in Chile rotates as people return from vacation, summer months start winding down, and so on; but, still not bad.

Inflation rate is still under 5%, and looks like it will stay there.

The central bank looks like they still have some amo to play with. They held interest rates to 3.5% , while growth was revised down to 2.75%. Everyone is expecting more of 1.9%, but still in a world of zero growth everywhere else; that is not a bad number to have.
http://www.bloomberg.com/news/articles/ ... ins-anemic

Peso is starting to strengthen a bit now, that everyone is betting the dollar strength has run it's course.

So, that still leaves the question, where is this boogie-man in the Chilean economy?

Most likely, as always with such a small economy, it come in the form of external crisis. Sometimes deserved, as say in the case of price of copper; however, sometimes not deserved in the case of the 2008 mortgage crisis.

Where it might be hiding, is if there is an overall global debt crisis. If there is suddenly massive increase risk off to all emerging and some developed markets (e.g. europe), Chile will get nailed with higher borrowing costs. At least until the dust settles. Which would be bad, if you are Brazil or whatever, but think Chile could ride out the Tsunami.
http://www.bloomberg.com/news/articles/ ... -12-months

But, this was the latest moodies report I could find on Chile's credit rating:
https://www.moodys.com/research/Moodys- ... -PR_332692

Definitely prolonged low copper prices are going to hit Chile, but the other day I seen an article about how the small copper producers were starting rotate in to gold mining. Chile has a lot of Gold, it is just not as cheap or easy as copper, and Chile has a whole lot of other things in the ground.

Perhaps, perhaps, a major spike in oil prices might hit Chile as an major importer; but that does not seem like it is going to happen any time soon. At the same time, I suspect that would just drive the price of copper and other commodities up.

if anyone else can find the boogie man in the Chilean economy, please post some data.
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Re: Chile Economy Check 2016 status

Postby rasmataz » Mon Feb 29, 2016 11:31 am

Good series of reports. Lithium is also a prime material that Chile has a lot off and the demand for it is increasing.

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Re: Chile Economy Check 2016 status

Postby admin » Mon Feb 29, 2016 11:39 am

The other shoe, that even I expected to drop in 2015, was real estate. There was a pull-back, but nothing like I thought would happen in the real estate market at the start of 2015. That said, perhaps two years of it will be too much to sustain.

Still, waiting for the summer months to be over due to the natural biz and credit cycle in Chile. What happens is everyone runs up big debts for summer vacation. If they own a second property or home in say the south of somewhere else for vacation, they will use it. Come February and so on, they go back to Santiago, loose their job or realize they can not sustain the payments, then either put on the market or default on their secondary property. In bad years this put's a lot of real estate on the market. In better years, less. So, I am interested to see in the coming months just how dramatic that cycle turns out to be.
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Re: Chile Economy Check 2016 status

Postby admin » Mon Feb 29, 2016 11:47 am

oh, by the way there is one less sinister reason for the lack of auctions and defaults during the summer months in Chile. All the lawyers, courts, accountants, process servers, and so on are on vacation too. It will take them a few weeks to get back to the office, get caught up on their paperwork, and start filing. If there is some sort of hidden tsunami of bad private debt floating around in Chile, it will not become apparent until about mid year or so.

Thus, say companies to get ahead of their own issues, cut workers back, and the workers then cut back their situation, it will take about 3-6 months for that to start showing up. You could in a sense say that defaults in Chile are really, really lagging indicator of the economy.
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Re: Chile Economy Check 2016

Postby admin » Tue Mar 01, 2016 10:23 am

Chile reduces the 2016 budget spending growth to 4.2 from 4.4, about 500 billion U.S.
http://www.bloomberg.com/news/articles/ ... ps-revenue

They are going to spend less on "studies".

The Bachelet administration has always been infamous for pissing money in to the wind on consultants to the consultants to the consultants to conduct thousands of pages of studies that sit in the corner of offices and collect dust. Of course conducted by consultant companies of their political friends, many that are former administration people that left office.
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Re: Chile Economy Check 2016

Postby admin » Sun Mar 06, 2016 9:12 am

interesting. Seems Uruguay, which if there was a competitor to Chile in South America terms of stability Uruguay would be it, is also loosing control of its inflation.

http://www.bloomberg.com/news/articles/ ... new-member

The common theme with all the inflation prone countries seems to be the lack of flexibility of the economies on a structural level. Fixed exchange rates, or fixed indexes that are political in nature rather than based on economics.
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Re: Chile Economy Check 2016

Postby admin » Tue Mar 29, 2016 8:51 pm

so, how many countries get to say they have a net public debt of zero these days?

http://www.reuters.com/article/chile-ce ... SL2N1710LD

I love this line from the central bank president (the bold is added by me):

"Chile has a healthy macroeconomy, it has a net public debt of zero, its external accounts are balanced, and it has an autonomous central bank with an inflation target that is believable," Vergara told a business forum.

That he had to tag that last bit on, was a punch at all the neighbors with make believe inflation numbers. I might quibble about the exact figure, and how it is calculated, but my general sense is it is not too far off. If anything I would say a lot of things have gotten cheaper, such as oil, that has been keeping a lid on all other forms of inflation. Yea, imports might be more expensive for Chile say against the dollar, but if the gas it takes to get the import to Chile is cheaper, it is likely overall cheaper.

The copper industry is getting smacked, inspite of the recent short rally in copper. The dollar is likly to strengthen again. salmon industry is in trouble. forestry might get a boost from U.S. building demand.

Overall growth targets are going to be in the 2% range it looks like, but at least it is growth. The economy is not blasting along at 5%+ growth, but it is not imploding like Brazil, Europe, or where ever.
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Re: Chile Economy Check 2016

Postby hlf2888 » Tue Mar 29, 2016 11:43 pm

yet...

For a conservative magazine The Economist was rather startling in February.http://www.economist.com/news/leaders/21693204-central-bankers-are-running-down-their-arsenal-other-options-exist-stimulate

The web of commerce encircles the world and connects all the countries.

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Re: Chile Economy Check 2016

Postby admin » Wed Mar 30, 2016 12:43 pm

That is the thing, Chile is still in a fairly enviable position of having lot's, in fact almost all, economic levers to pull. Very few countries have that.

Chile would likely deteriorate if say copper drops around 1.50 and stays there for a year or two; but, no signs of that yet. In fact the low copper price seems to be kicking Chile in the rear to shift in to other industries, even if that is just redirecting investment in mining in to other minerals.

I do see some signs around the edges of companies with large exposure to the neighboring economies getting hit recently, although it sort of starting to look like the worse is over for them.

A lot of them however that were in better positions seem to be expanding in to the neighboring downturns. Lot's of companies doubling down on Peru, Colombia, Brazil, and lot's of companies that had investments stuck in Argentina starting to get some sort of return out of those investments that were stranded there. In fact, I buy stock in Chilean companies I tend to stay away from most companies in Chile that only invest in Chile. The country is just too small for there to be any chance of growth, but companies that are chasing opportunities in the neighboring countries from the safety of Chile will do well over the next decade.
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Re: Chile Economy Check 2016

Postby ExpatBob » Tue Apr 05, 2016 3:43 pm

admin wrote:interesting. Seems Uruguay, which if there was a competitor to Chile in South America terms of stability Uruguay would be it, is also loosing control of its inflation.

Bwahaha! Uruguay appears "stable" to the economic morons of the world because it has been stuck in a self-imposed recession for decades and has cut off its ability to truly interact with the "real world" ala cutting off the nose to spite the face!!!
However I don't know where they get off saying it's stable in any way, since their peso has inflated while price of local goods has ratcheted up simultaneously during various peso/dollar comings and goings, taking a basic chicken from 90 pesos to over 400 in the course of 5 years. Gasoline similarly went from about 20 pesos per liter to 42.5.


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