Chile Quake Poses Minor Threat to GDP

Sell side analysts say Chilean growth is unlikely to take a significant hit from the 8.8 magnitude earthquake that hit the country February 27. Global insurance and reinsurance advisor Eqecat estimates damage from the earthquake at $15bn-$30bn, equal to 10%-15% of the country’s GDP. But Bank of America Merrill Lynch says the impact will be limited to the near term, and that the country will post healthy growth of 4.0% in 2010, down from a prior estimate of 4.7%. Barclays meanwhile expects the impact on growth to be short-lived, given a lower death toll and higher availability of resources to pour into reconstruction versus to similar disasters in places like Indonesia and Thailand. “The financing of whatever extraordinary spending is decided should be a non-issue, in our view, as Chile counts on $11.3bn in its Economic and Social Stabilization Fund,” the shop says. It adds that whatever weakness is observed in growth will likely reflect supply-side constraints, rather than a demand shortfall. The quake, which has brought a death toll surpassing 700, is not expected to significantly impact banking or copper, Chile’s most important export. “We . . . do not expect the earthquake to have an immediate impact on the financial system or to our bank ratings,” says Moody’s VP Jeanne Del Casino. Codelco, the state-run miner and the world’s largest copper producer, says it has restarted operations in the central part of Chile, where the impact from the quake was strongest. It also says operations in northern Chile suffered no significant damage, and that it will meet supply contracts. Copper prices rose less than 0.1% March 1, according to US-based metals retailer Kitco. “The effect on copper prices will be purely transitional as Codelco’s mines are mostly in the north,” says Christopher Ecclestone, a New York-based mining strategist at Hallgarten. Barclays agrees, saying that the earthquake was far enough from mines not to affect infrastructure there. It adds that production