The economy is projected to grow by 2.4% in 2024, slowing slightly to 2.3% in 2025, and 2.1% in 2026. Growth will be driven by a gradual recovery of investment, solid consumption growth supported by increasing real wages and easing financial conditions, and sustained external demand for minerals. Inflation is expected to decrease steadily, converging to the 3% target by early 2026.

Monetary policy will continue its prudent easing. A new mining royalty and a law to improve tax collection will boost revenues, while expenditure will follow the fiscal rule, narrowing the fiscal deficit and keeping debt manageable. However, long-term spending pressures necessitate higher tax revenues and improved spending efficiency. Streamlining regulation remains a priority to foster entrepreneurship, attract investment and bolster low growth potential. Training programmes should be aligned with labour market needs to reduce skill shortages.

Output grew 0.7% (seasonally adjusted) in the third quarter underpinned by domestic demand, especially investment in machinery and equipment, and government expenditure. Manufacturing, personal services, and transport supported growth in the third quarter, but mining and agriculture grew modestly, and several service activities weakened. Business confidence remains subdued, except in mining. Employment growth has stalled in recent months. Inflation has strengthened since March, largely driven by the unfreezing of electricity prices, reaching 4.7% in October. Real wages have increased throughout 2024.

Solid sales of electric vehicles and a new cash incentive in China to upgrade machinery and equipment will boost consumption and investment, aiding exports of minerals. Supply of copper is failing to meet sustained demand, leading to an increase in prices that will persist over 2025-26, but lithium prices are unlikely to return to previous years’ highs.

After a temporary pick up of inflation in late 2024 and early 2025 due to the unfreezing of electricity tariffs, inflation is expected to decline due to contained demand pressures and anchored inflation expectations. The central bank is expected to keep cutting its policy rate to reach neutral levels by the end of 2025, with the nominal policy rate settling at 4.3%. The central government fiscal deficit is projected to narrow from 2.3% of GDP in 2024 to 1.3% in 2025 and to 1.0% in 2026, slightly above government targets. Steady minerals demand and rising copper prices, along with the new copper mining royalty and the new law to foster tax compliance, will support revenue in the medium term, though less than the government projects. Expenditure will adhere to the fiscal rule and while central government debt will increase, it will remain under the 45% debt ceiling.

The economy is projected to grow by 2.4% in 2024, 2.3% in 2025 and 2.1% in 2026. Higher real wages and further easing of monetary policy will continue to support consumption. Solid demand for minerals needed for electrification will underpin strong export growth and foster a mining-led recovery in investment. Unemployment will decline over 2025-26. Inflation will fall during 2025 on the back of contained demand pressures and anchored expectations, to reach the central bank target of 3% in early 2026. Risks to the outlook are significant. Slower growth in China could hinder demand for minerals, hurting Chile’s exports and growth. Political gridlock may delay the implementation of growth-supporting reforms, while new pension fund withdrawals would weaken the financial system. On the upside, a faster global green transition might increase foreign direct investment and exports.

Continued reforms to streamline regulatory processes are crucial to spur entrepreneurship and attract investment, particularly in sectors connected to the green transition. A more progressive tax system and better tax administration can fund growth-enhancing spending. Ensuring basic social protection coverage for all workers while reducing formal employment costs can reduce informality. Companies report a scarcity of professionals in information and communications technology and the mining industry projects a shortage of workers over the coming decade. Collaborating with businesses to align vocational and university curricula with current and forecasted skill needs, while strengthening career guidance, can reduce skill shortages. Facilitating women’s access to the workforce, particularly in better-paid jobs, can support gender equality and boost potential growth.