OECD Economic Surveys: Chile 2025

The Chilean economy has returned to its trend growth on the back of adequate macroeconomic policies, after overheating following the pandemic. However, Chile’s income convergence with more advanced OECD economies has stalled since 2012 (Figure 1), partially reflecting declining productivity and weaker investment. Chile’s long-term growth outlook will largely depend on its ability to address structural barriers to lift productivity and investment, while increasing space for government spending. Efforts to profit from the digital and green transitions and boost a wider participation of women in the labour market are necessary to stimulate growth potential.

Investment has slowly recovered from the pandemic, yet long-standing structural barriers hinder Chile’s catch up in productivity and living standards with more advanced OECD economies. A slowing economy, constrained capital markets, policy uncertainty and restrictive monetary policy leading to tight credit conditions weighed on business investment after the pandemic. Besides short-term challenges, structural barriers hinder productivity growth. A lengthy and complex permit system, low digital skills and digital uptake among SMEs, and persistently low female labour force participation weaken Chile’s medium term growth potential. Implementing the new national strategy on public integrity and the public procurement law will reduce corruption risks and foster competition.

Chile is well positioned to profit from the green transition thanks to its high potential for renewable energy, and its large reserves of lithium and copper, minerals critical for electrification. To leverage on these advantages, Chile needs to promote investment, streamline regulation processes, ensure an adequately prepared workforce, and develop the State’s technical capabilities, while protecting water resources and biodiversity.

Growth recovered more firmly in 2024. The evolution of headline and core inflation have allowed monetary policy to continue its prudent and data-driven easing cycle. Economic growth is projected to remain solid in 2025 and 2026.

Growth is projected to recover to 2.4% in 2024 and to remain solid at 2.3% in 2025 and 2.1% in 2026 (Table 1). Recovering real wages and monetary policy easing will support higher real income and consumption growth. A gradual improvement of credit and financial conditions in Chile should increase access to credit for consumers and spur investment growth. Investment in mining projects will grow on the back of sustained demand for minerals within the global green transition. Risks to the outlook, particularly external ones, remain.

Economic growth continued to moderate in 2023 on the back of sound macroeconomic policies. After decisive monetary tightening since 2021 until late 2022, and the withdrawal of pandemic-related support measures and fiscal tightening in 2022 the output gap narrowed, and inflation fell.

Fiscal and monetary authorities are committed to macroeconomic stability. Fiscal plans are aligned with the structural fiscal rule, projecting a gradual fiscal tightening in 2024-2026 (Figure 2). The Central Bank has significantly eased monetary policy amid firmly anchored inflation expectations and projected falling inflation.

The government is pursuing a reform agenda that pledges to increase permanent spending only if structural revenue increases. The fiscal space is limited, and long-term spending pressures are set to increase. Putting debt on a declining path and addressing spending needs will require higher tax revenues and greater spending efficiency.

Fiscal space has been narrowing over the past decade on the back of higher debt, low economic growth and higher government spending, while pressures are set to increase in the longer term. Tax revenues of close to 21% of GDP are insufficient to meet spending needs and future fiscal pressures due to necessary spending in the green and digital transitions, to deal with more frequent and severe climate risks, and higher spending from population ageing. A comprehensive tax reform can increase fiscal space. Such reform should consider raising more revenue from personal income taxes, reducing the tax burden on businesses, higher immovable property taxes, and environmental and tobacco ones, even if transitory, while gradually lowering regressive income tax deductions and exemptions. Efforts should also focus on reducing tax evasion and improving spending efficiency.

Chile has a robust fiscal framework that can be further strengthened, particularly in the face of the green transition. The fiscal framework has been reinforced in 2024 with an enhanced dual-target fiscal rule, including the structural balance and a debt ceiling to contain gross debt. Also, the Autonomous Fiscal Council was recently strengthened. As the lithium industry evolves, the fiscal rule must ensure that windfall gains are saved. Integrating fiscal risks associated with climate change in the medium-term budget framework and long-term fiscal sustainability analyses is necessary to create fiscal space to absorb losses.

Social and economic inequalities between men and women have decreased in Chile, but large gaps in labour market participation (Figure 3) continue to cause disparities in income and pension benefit. Closing gender gaps in the labour market can increase the labour force, boosting potential growth by improving resources allocation and alleviating the impact of an ageing population. To facilitate women’s participation in the labour market it is necessary to continue efforts to better balance unpaid work between women and men, reduce education gaps in high-skill occupations, and foster women participation in leadership roles.

Women continue to face barriers to employment, particularly full-time. Family responsibilities, traditional gender roles, and lack of affordable childcare preclude many women from working full-time, especially after becoming mothers. A strengthened high-quality childcare system, enhanced parental leave policies, and wider access to teleworking can help support a more equal balance of unpaid workloads between women and men, thus supporting mothers staying in work or entering the labour market.

Education and skills disparities accumulate over time as women tend to make educational choices that lead them to occupations with lower expected earnings, compared to men. Greater efforts to eradicate gender stereotypes in education from an early age and to encourage more women to pursue STEM careers can boost women involvement in high-wage jobs. Women not in employment participate less often in adult training than men, limiting their reskilling. Reviewing adult training courses and gradually incorporating short and flexible trainings, while covering training costs can help upskill more women.

Accelerating productivity requires boosting digitalisation and innovation. Chile has one of the highest connectivity rates in the Latin American region following policy efforts to close connectivity gaps. However, it lags other OECD countries in several areas such as digital skills, use of digital tools among small firms, digital innovation, and interoperability of government digital services, which hinder wider benefits of digitalisation.

Chile faces shortages of high-skilled workers for the digital and green transitions, at the same time many individuals lack the skills to perform adequately in a digital world. Foundational skills among young students, and adults’ skills for the digital economy are low in Chile. There is also a deficit of ICT professionals and demand is likely to increase as the IT sector keeps expanding. Efforts are needed at all levels of education and training, including lifelong learning and reskilling, to keep up with the digital transition.

Boosting digital innovation and facilitating the adoption and diffusion of digital tools in SMEs are fundamental for the digital transformation. Chile has policies to boost innovation and investment in R&D including tax incentives and grants, yet business R&D spending is low. Small enterprises still lag in the adoption of digital technologies despite ample public programmes to boost SMEs’ digitalization. Increasing the coherence and integration of R&D grants programmes and better tailoring public training to SMEs would support digital adoption.

As AI use expands, the government should remain vigilant, so AI initiatives do not outpace regulation. Ensuring a proper implementation and regular updates of the AI national strategy while enhancing the training of government officials to use AI effectively and ethically can help harness AI benefits.

Chile faces significant climate hazards and has set ambitious targets to decarbonise its economy. Investment in adaptation measures must increase. To achieve climate targets and harness the benefits for growth and wellbeing of lithium and green hydrogen production, policy actions are needed to increase carbon prices, improve regulation, bolster investment, improve electricity transmission and port infrastructure, and enhance skills and innovation.

Emissions may not meet the 2025 and 2030 targets, requiring faster reduction of emissions, particularly in the energy and transport sectors (Figure 4). Higher carbon prices and more stringent regulations, coupled with the phase-out of fossil fuel tax expenditures is needed. Since reaching net zero by 2050 depends critically on carbon sequestration, preventing wildfires through better management of forest resources is essential. Reducing regulatory burdens, expanding electricity transmission lines and improving storage capacity are critical steps for making the most of renewable energy. Strengthening incentives to replace the most polluting vehicles and deploying sufficient charging infrastructure can spur the uptake of greener vehicles and the electrification of public transport, including in lagging areas.

Ramping up adaptation measures is key to manage the climate-related risks Chile is already facing. Investment in public and private resilient infrastructure must accelerate. Home insurance is low, and take-up could be increased through stricter regulation. Ensuring stable public resources for prevention of climate related risks, such as floods, droughts, and fires and for emergency response and disaster relief is critical, alongside efforts to raise awareness about risks.

Chile needs to ensure a coordinated, targeted and well-funded policy response to assist the population affected by decarbonisation policies. This could include helping workers laid off from polluting industries to reskill and reallocate, improving the coverage and adequacy of cash transfer programmes, and compensating vulnerable populations for higher carbon prices.

Green hydrogen is central to Chile’s decarbonisation plans, expected to contribute 21% of GHG reductions by 2050, by helping to decarbonise hard-to-abate sectors. Developing a hydrogen industry can boost employment, attract investment, and support growth. To promote the sustainable development of the industry Chile needs to streamline permitting processes, monitor and evaluate training programmes, invest in port, road and rail infrastructure, while protecting water availability and biodiversity.

Chile can benefit from rising world demand for lithium, as it has the largest share of known lithium reserves, and comparatively low production costs. National plans foresee significant state participation in production alongside the private sector, which calls for strengthening the State’s technical capabilities and improving corporate governance in the State’s main mining company. Growing the lithium industry can provide resources for economic diversification, but it also must entail protecting water availability and biodiversity.

Private sector financing will be key for the investment required to decarbonise the economy and build new industries. Chile has made progress in greening its financial system and attracting resources for decarbonisation. Greater private and public capacity on green finance is needed. Ensuring that the financial system identifies and incorporates climate-related risks and opportunities in their business models is crucial.