By Orietta Ramírez, Public Affairs Manager at Green Leader
The Chilean economy continues to show signs of cooling, as confirmed by the latest data from the Central Bank. The Monthly Economic Activity Index (IMACEC) recorded a 1.1% drop in April, placing it at the lower end of expectations, which ranged from -0.2% to -1.5%. Furthermore, the seasonally adjusted series (a measurement that attempts to eliminate fluctuations in economic activity due to seasonal changes) showed a 0.6% decrease compared to the previous year.
For some, the alarming issue is that the non-mining IMACEC (which excludes mining activity from the measurement) has experienced eight consecutive months of contraction (a general decrease in the supply of goods and services in the market), indicating the weakness of domestic demand, particularly in commerce, which saw a concerning drop of 7.7% in April, with supermarket and specialized stores' sales being the most affected. A simple analysis tells us that Chileans are reducing their spending, and confidence in the economy is weakening..
However, an analysis of the composition of April's IMACEC reveals that the mining sector had a positive impact on economic activity, growing by 3.9% (seasonally adjusted), despite the weak results in February and March (seasonally adjusted), where it experienced a 3.1% and 8.5% decline, respectively, after recording a 4% growth in the first month of the year.
Economic experts suggest that this trend of contraction will likely continue in the coming months, putting pressure on domestic demand, although a decrease in inflation is expected. Nonetheless, it is a consensus that the economy faces significant challenges.
A Predicted Scenario
From a broader perspective, some argue that the low IMACEC figure for April is not a response to the current situation but rather a predicted chronicle of the economy heading towards secular stagnation. This means it's a more structural trend of long-term low economic growth that lasts for a significant period, such as years or decades.
The complexity of facing such a scenario lies in the causes, which originate from reduced productivity, an aging population, income inequality, and a lack of investment in new technologies and skills, among other factors. Recovery might be slow despite political efforts and expansive monetary policies.
On the other hand, the consequences of secular stagnation can have serious effects on the economy, such as increased unemployment, reduced consumer spending, and decreased investment, among others.
All of this should make us not only reflect on the urgency of generating strategies to recover and revitalize economic confidence in the short term but also create room for a profound discussion about sustainable long-term growth. It's time to define our national strategy that allows us to chart a path to development, and undoubtedly, the mining sector is one of those with a strong long-term outlook. Given the world's demand for transitioning to clean energy and Chile's competitive advantages in leading global copper production and possessing the largest copper reserves on the planet, not to mention the boost from lithium in this sector.
There's no doubt that we face significant challenges at the national level to overcome this secular stagnation. Generous, forward-thinking dialogue and a sense of state responsibility should frame this discussion. As Churchill said, the difference between a politician and a statesman is that the former is thinking about the next election while the latter is thinking about future generations. Let's hope the latter prevails so that all efforts prove worthwhile and don't end up as the classic "dead cat bounce."
