VZCZCXYZ0003
RR RUEHWEB
DE RUEHSG #1074/01 3141915
ZNR UUUUU ZZH
R 101914Z NOV 09
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC 0244
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 001074
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 CI
SUBJECT: CHILE: MONTHLY ECONOMIC HIGHLIGHTS - SEPTEMBER AND OCTOBER
REF: SANTIAGO 868 AND PREVIOUS
1. SUMMARY: Despite recent positive signs, Chile's economy is
still working through the negative effects of its recession.
Economic activity contracted again in August and September. The
unemployment rate in Chile decreased to 10.2% for the first time
after nine increases in a row. Although inflation experienced a
small uptick in September, it remained unchanged in October, and
the annual rate fell to -1.9%. Chile's Central Bank maintained the
key interest rate at 0.5% in October. Trade numbers were slightly
lower as was investment. Government spending increased as did
Chile's foreign debt. After ten months of the year, copper prices
had risen by almost 126%, the Peso had appreciated against the
Dollar by 16%, and the stock market had increased by 39%. END
SUMMARY.
Economic Activity Contracts 11 Months in a Row
--------------------------------------------- -
2. The Central Bank reported that the monthly economic activity
indicator (Imacec) contracted by 0.1% in August and 1.1% in
September 2009 compared with the same months in 2008. This makes
eleven straight months of economic contraction. Experts had
believed the Imacec was showing a deceleration in its rate of
decrease. The seasonally adjusted Imacec for August 2009 actually
showed an increase of 0.4% when compared with the month before
(there was also an increase in July). However, September's
seasonally adjusted Imacec decreased by 0.3% when compared with
August's number. September's Imacec was unexpected and economists
now hope October will demonstrate signs of positive growth.
3. In September, Chile's Industrial Federation (SOFOFA) reported
that from March through August, industrial output contracted by
11.7% compared to the same period in 2008. The Chilean National
Chamber of Commerce (CNC) reported, however, that retail sales in
Santiago expanded by 1.6% compared to the same period last year.
There was a 16% rise in sales of clothing and 3.5% increase in
footwear. The CNC anticipates total sales will grow this year
2%-3%.
4. Chile's National Car Dealers' Association (ANAC) reported in
September that July/August sales of new cars rose by 15%. However,
over the March-August period sales were still down by 44% compared
to the same period in 2008. Also in September, the Chilean Chamber
of Construction released the monthly indicator of construction
activity (IMACON). The IMACON reached its highest level since
October 2008, but was still well below its peak reached in August
2008.
Unemployment Finally Falls Slightly
-----------------------------------
5. The National Statistics Institute (INE) reported that the
national unemployment rate stayed at 10.8% during June - August
2009 and fell to 10.2% during July - September 2009. The last
trimester marked the first drop in the national unemployment rate
after nine straight increases. In the last period, unemployment
decreased in 10 of Chile's 15 regions, remained in double digits in
17 of Chile's 33 largest cities (remaining above 14% in 6 of those
cities, including almost 20% in Coronel), and fell to 10.1% in the
greater Santiago area.
Downward Trend in Inflation Ends
--------------------------------
6. The INE also reported that the Consumer Price Index increased
1% in September compared with the preceding month and remained
unchanged in October. This marked a departure from the deflation
of previous months. The CPI's annualized change fell to -1.9% in
October. The CPI has fallen by 0.6% since the start of 2009.
Interest Rate Maintained at Low Level
-------------------------------------
7. The Central Bank decided to maintain the key interest rate
(monetary policy rate) at its minimum of 0.5% in September and
October. 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 cut the rate to
0.5% in July, where it has remained for four straight months, after
six previous reductions from a rate of 8.25% in December 2008.
8. According to the Central Bank, credit market conditions have
improved, but remain tight. Market interest rates continued to
drop in the third quarter, while bank spreads also narrowed. By
September, the nominal cost of borrowing for up to 90 days was at
an annual rate of 3.84%, down from 5.88% in June (and 16.44% in
December 2008). The cost of loans with a maturity of 90 to 365
days had dropped to 11.4% down from a peak of 19.56% in January
2009.
9. On October 30, the Central Bank announced it will withdraw some
of the non-conventional measures used to expand monetary policy in
response to the financial crisis.
--The Central Bank will suspend the program of foreign currency
swaps of up to 180 days. Weekly foreign currency swaps of up to 90
days, in the amount of $400 million, will remain active until June
2010.
--Repurchase operations (REPOs) of up to 7 days will not be renewed
beyond December 2009, while solicitations for 28 days will be
maintained until June 2010.
2009 Trade Numbers Still Down
-----------------------------
10. By September, total Chilean exports were valued at $37.4
billion, down by 31% compared to the same 9-month period last year.
While total imports were valued at $28.3 billion, down by 36.7%.
Chile ran a trade surplus of roughly $9 billion, which was about
the same as the first 9 months of 2008.
Government Spending Up in Response to Crisis
--------------------------------------------
11. The GOC's fiscal spending climbed by 20.3% over 2009 compared
to 2008, as a result of counter-cyclical policies designed to
combat the effects of the international financial crisis. However,
spending is projected to rise only 4.3% in 2010. Government
revenue has also been hit by the international crisis, down by
33.1% in the first eight months of the year, compared to the same
period last year. This is, in part, due to the large drop in state
copper company Codelco's earnings, which fell by 97.7% during the
same 8-month period, as compared to 2008. Tax collection from
private mining companies also fell by 85.5% during the same
time-frame.
12. The GOC forecasts a structural deficit of 0.4% of GDP for
2009. The Ministry of Finance has announced that it will not
comply with the structural fiscal rule this year. [Note: Since
2001, Chilean law normally mandates a structural budget surplus of
1% of GDP. In May 2008 it was temporarily reduced to 0.5%, and
this year to 0%, as a result of the economic crisis. End note.]
Foreign Debt Shows Small Increase
---------------------------------
13. Chile's foreign debt reached $66 billion in August, up from
$64.8 billion at the end of 2008. As of September, international
reserves were valued at $26.1 billion, up from $23.5 billion in
June.
Investment Down Slightly
------------------------
14. During the first eight months of the year, foreign direct
investment (FDI) was valued at $8.6 billion, down from $10.4
billion in the same period last year. Chilean FDI abroad reached
$4.6 billion, as compared to $4.9 billion in the same period last
year.
Copper Prices Keeping Moving Higher
-----------------------------------
15. On the London Metals Exchange, copper closed at approximately
$2.98/pound on October 30. The price of copper was up almost 126%
since the beginning of 2009.
Chilean Peso Still Appreciating Against Dollar
--------------------------------------------- -
16. On October 30, the observed exchange rate closed at
approximately 532 Chilean Pesos to 1 U.S. Dollar. This rate marks
an appreciation of about 16% from the beginning of 2009.
Stock Market Also Continues Gains
---------------------------------
17. The IPSA closed at 3314.45 on October 30. The IPSA is up
almost 39% after 10 months of 2009.
SIMONS