(Bloomberg) – Chile’s economic growth slowed sharply in the fourth quarter, even as Latin America recorded its best year of expansion ever amid billions of dollars in emergency fiscal stimulus and withdrawals anticipated pensions.

Bloomberg’s Most Read

Gross domestic product rose 11.7%, the highest on central bank records dating back to 1961, data showed Friday. Still, the economy grew 1.8% in the fourth quarter from the previous three months, below analysts’ median estimate of 2.2% in a Bloomberg survey and less than half the pace of 4, 5% from the third quarter.

Chile exploded last year as one of the world’s fastest vaccination campaigns against Covid-19 propelled economic reopening, at the same time as fiscal stimulus and a series of early pension withdrawals fueled the consumer demand. Yet both of these stimulus effects are now fading, just as the war in Ukraine threatens to fuel inflation which is already at its fastest pace since 2008.

“Momentum has started to fade this year, driven by a loosening of pent-up consumer demand, the Omicron-related shock, a sharp drop in real household disposable income” and lower stimulus measures. stimulus, said Andres Abadia, analyst at Pantheon Economics. . “The conditions will remain difficult.”

The jump in domestic demand last year pushed the current account deficit to $7.55 billion in the fourth quarter, the most since at least 2003 and from the $5.6 billion forecast by analysts.

Retail Frenzy

Growth was driven last year by a 20.3% jump in consumer demand, as fiscal spending rose more moderately at 10.3%. Investment jumped 17.6% over the same period.

However, consumer spending growth slowed to 16.1% in the fourth quarter from a year earlier and likely slowed further in the first three months of this year. Retail sales rose 14.2% in January from a peak of 73% in May last year, according to figures released late last month.

The story continues

Political uncertainty could also weigh on growth this year, Abadia said. On March 11, Gabriel Boric was sworn in as Chile’s youngest president and leftmost head of state in 50 years. He promised tax, labor and pension reforms, while pledging to control public debt, even as the country drafts a new constitution.

Boric also said he would oppose any attempts at additional pension fund withdrawals. Three rounds of levies pumped about $50 billion into the economy, fueling an increase in consumption of goods from automobiles to electronics, while fueling inflation.

While the previous administration had said GDP would grow by 3.5% in 2022, new Finance Minister Mario Marcel told local press on Thursday that those estimates are not “reasonable” and “are not consistent with the adjustment that the economy should have this year to control”. inflation.”

Consumer prices rose 7.8% in the year to February, well above the 3% target. Policymakers have raised borrowing costs by 500 basis points since July and are expected to make another aggressive hike later this month.

Bloomberg Businessweek’s Most Read

©2022 Bloomberg LP