Chile has been surfing the cyclical momentum since Q4 2017. The election of pro-business candidate and former president Sebastian Piñera triggered a positive sentiment shock in the economy; in May the business confidence index (IMCE) reached its highest level in five years. More importantly, the cyclical rebound (Q1 real GDP grew +1.2% q/q and +5.1% y/y) can be attributed to higher copper prices and the recovery in production from a poor 2017 (after a strike in the country’s largest copper mine in Q1 2017). Indeed, 12-month production surged to 5.82mn tons in April 2018 from 5.37mn in June 2017, the highest since December 2015. This benefited Chile’s trade balance which reached +USD10bn for the first time since 2012. With this upswing, inflation has begun to converge to the target (+2.5%) again; in May it came in at +2.0% y/y after +1.9% in April and +1.8% in March. The Central Bank is expected to tighten policy rates next year on the back of stronger internal demand.
