Chile

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April 2016

Chile has the highest income per capita in Latin America and outperforms most of the region on growth, creditworthiness and business climate.  It relies heavily on copper and is one of the most stable and prosperous economies across the region. It is the first South American country to be admitted to the OECD. (The only other Latin American member is Mexico.)

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Economic outlook

Chile’s growth has slowed sharply as weaker Chinese demand and falling copper prices have reduced its terms of trade, business confidence and investment. Chile produces a third of the world's copper — the red metal accounts for 20% of GDP and 60% of exports. A mild recovery in the economy is forecast over the next two years, supported by accommodative monetary policy, expansionary fiscal policy and strengthening external demand.

A sharp depreciation of the Chilean peso has put upward pressure on inflation. However, with little risk of an inflation breakout, the central bank has scope to react to an incipient deterioration in the labour market.  A further decline in copper prices and tighter US monetary policy pose significant risks to the outlook.

Favourable population demographics and an expanding middle class will support the long term outlook. Policymakers are also increasing access to education, thereby opening up opportunities in higher value added production and services. 

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Chile recently graduated to high income status, but most impressive has been the reduction in poverty from 40% in 1990 to 14% currently.

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Business climate

Chile enjoys an investment grade credit rating. This suggests a relatively low likelihood that it will be unable or unwilling to meet its external debt obligations in a systemic sense (though, needless to say, individual debtors can and do default).

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The business climate comes in at 48 out of 189 economies on the World Bank’s ease of doing business gauge — which measures regulation and red tape relevant to a domestic small to mid-sized firm. The emphasis on free market economics and a relatively open economy have attracted investors. Not surprisingly, Chile outperforms the region in all areas of doing business.

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Chile scores in the top quartile in all areas of governance except for political stability and absence of violence. Violent demonstrations and petty theft are likely reasons for the lower score here. Nevertheless, Chile remains amongst the best governed countries in Latin America. 

Bilateral relations

Chile is Australia’s 36th largest trading partner. Both countries signed a free trade agreement, the Australia-Chile Free Trade Agreement, in 2008. Australia sent US$268m of goods exports to Chile in 2014-2015 made up mostly of coal, petroleum and beef—NH Foods in Wingham exports beef to Chile. Import payments to Chile were worth US$907m consisting mainly of copper.

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Service exports to Chile were worth A$163m in 2014-2015 and consisted mainly of professional and technical services, presumably in the mining industry. Immersive Technologies and Seeing Machines are two examples of Australian firms exporting services to Chile. Tourist arrivals from Chile are negligible and student enrolments form only 0.2% of total foreign enrolments in Australia.

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Australian investment in Chile has grown 14% p.a over the last four years. Most of this is in mining; however Australian companies are venturing into other sectors. Boost Juice for example has opened stores in Santiago to capitalise on the expanding middle class. Chile’s inclusion in the Trans-Pacific Partnership adds further upside to the investment and export outlook.

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Useful links

Department of Foreign Affairs

Country brief

Austrade

Market Profile