Alberto Naudon: Chile's Economic Outlook

Why It Matters

The stronger growth and easing inflation reinforce Chile’s macro‑economic credibility, supporting copper exports and regional investment confidence.

Key Takeaways

• Non‑mining growth close to 3% surpasses forecasts
• Investment up 7% driven by mining and energy projects
• Inflation converging to 3% target by early 2026
• Policy rate held at 4.5% amid stable expectations
• 2026 challenges: productivity, real exchange rate, external shocks

Pulse Analysis

Chile’s 2025 performance illustrates how a resilient external backdrop can offset domestic headwinds. Robust demand for copper, spurred by the global energy transition and heightened defence spending, lifted export revenues even as mining output lagged. Simultaneously, a surge in machinery and equipment investment—particularly in large‑scale mining and energy projects—propelled overall capital formation to nearly 7%, signaling confidence in long‑term asset development. This investment‑led momentum helped broaden growth beyond the resource sector, cushioning the economy against lingering labor market fragilities.

Inflation dynamics added another layer of nuance. Early‑year price pressures prompted concerns about entrenched expectations, yet a combination of peso appreciation, lower commodity costs, and the delayed impact of prior tightening drove headline inflation down to 3.5% and core to 3.3% by year‑end. Expectations surveys show the two‑year‑ahead outlook firmly anchored at the 3% target, granting the Central Bank leeway to maintain a policy rate of 4.5%—slightly above its estimated neutral level. This calibrated stance balances the need to prevent a premature resurgence of price pressures while supporting the nascent recovery.

Looking forward, 2026 will test whether the current upturn reflects structural gains or temporary cyclical boosts. Productivity improvements, real exchange‑rate appreciation, and the sustainability of high‑price copper exports are pivotal variables. Moreover, geopolitical volatility and shifting global financial conditions could quickly alter the external environment that has underpinned Chile’s recent resilience. Policymakers will need to monitor these factors closely, ensuring that monetary policy remains flexible enough to safeguard inflation targets without stifling the investment pipeline that is central to the country’s growth narrative.