By Robert Kozak in Lima, Peru
Economists and government officials in Chile and Peru are
warning that a reversal of slow economic growth may be tougher than
previously thought.
Big mining nations, Chile and Peru are suffering from weaker
export prices for minerals such as copper, which has hurt
investment as well as business and consumer confidence. Their
central banks reduced interest rates Thursday to try to spur
growth, and BBVA Research said another rate cut will likely take
place in Chile this year while further monetary policy loosening in
Peru can't be ruled out before the end of the year.
"With little chance of a significant rebound in growth over the
coming years, we expect (policy) rates in both countries to remain
low for a long time," Capital Economics said Friday.
Credit Suisse said this week that fixed investment in Chile will
decline 4.7% this year, compared with a rise of 0.4% last year and
by 12.2% in 2012. The bank said pace of investment growth in Peru
will be lower this year than in the two previous years, but it
won't be as dramatic as in Chile.
"There is a sense that both of the economies have been a free
fall in the last few quarters," said UBS economist Rafael De La
Fuente. "There has been a loss of confidence in both economies,
especially in Chile in recent months."
Government officials in Peru who earlier forecast growth would
pick up sharply in the second half of the year are now playing down
those expectations. Finance Minister Luis Miguel Castilla told
Congress this week that a vigorous recovery in gross domestic
product "will still take a few months more."
Peru's finance ministry recently slashed its 2014 growth
forecast to 4.2% from 5.7%, although some economists think that
even that is too optimistic. BofA Merrill Lynch sees an expansion
of 3.4% this year, down from the 5.8% growth posted last year.
In Chile, the central bank has whittled down its monetary policy
rate by 175 basis points since last October, while at the same time
steadily reducing growth forecasts.
The central bank now sees an economic expansion of from 1.75% to
2.25% this year, compared with growth of 4.1% last year and 5.4% in
2012. Credit Suisse this week lowered its 2014 GDP forecast to 1.9%
from a previous forecast of 2.7% "to reflect disappointing results
year to date."
"The slowdown has been deeper than what we expected," Chile's
central bank director Joaquín Vial told company executives at a
conference in Mexico this week.
President Michelle Bachelet has promised to spend an extra $500
million before the end of the year to help boost growth.
"It is difficult to see what will be the catalyst in Chile for a
turnaround in sentiment and investments," Mr. De La Fuente, the UBS
economist, said.
Late Thursday the central bank in Chile cut its monetary policy
rate by 25 basis points to 3.25%, while the Central Reserve Bank of
Peru chopped its key policy rate by 25 basis points to 3.50%.
Monetary easing in Chile and Peru is in contrast with that
taking place in Brazil, Latin America's largest economy.
While Brazil's GDP growth is forecast to be as low as 0.5% this
year by economists surveyed by the central bank, interest rates
remain at 11%, up from 7.25% early last year. With inflation at the
6.5% ceiling of the banks' target range, all indications are that
interest rates won't come down before 2015 at the soonest, analysts
say.
Paulo Trevisani in Brasília contributed to this article.
Write to Robert Kozak at robert.kozak@wsj.com