Chile in Firing Line, Says BCP

Chile is in for two years of stagnation, according to research from BCP. “It is time to man the bulwarks,” says BCP’s head of research Walter Molano. “We are in for a rough patch.” Positives for the credit include good infrastructure, a trade surplus of almost $20bn and another $20bn in the copper stabilization fund. However, it is exposed to a downturn in commodities and failed to maximize the benefits of the commodity boom. “Chile lacks the labor productivity needed to increase the value-added content of its basic commodity production. This is the reason why Chile will suffer when commodity prices fall and the windfall evaporates,” says BCP. The shop points to a fall in copper prices and wood exports to the US and the impact that external events are having on Chilean asset prices, including a 12% retracement in the bolsa during the past month, as well as widening bond spreads. BCP predicts 2008 growth of close to 4.3% year-on-year, and 2007 inflation of almost 7%, twice that of 2006. “The combination of slower growth and rising consumer prices will increase the misery level – producing an effect commonly known as stagflation,” says BCP.