Economic Climate in Latin America: Chile recovers top place in ranking

According to the Getulio Vargas Foundation, there are few barriers to investment and exports in Chile, a greater access to capital and more stable economic policies as well as a high level of confidence in the Central Bank, an advantage compared to the rest of the region.

Economic confidence in Latin America has collapsed to its lowest level in a decade. In this somber situation, Chile has returned to top place in economic confidence in the region.

This is the conclusion of a study by the Economics Institute of the Getulio Vargas Foundation (FGV) which, for a decade, has been publishing a quarterly comparative analysis of the mood in the region’s economies, based on two dimensions: a country’s current situation and its outlook for the future.

Its study for April shows a sharp drop in confidence in the region, with the Economic Climate Index dropping to -60.4 points on a scale where 0 corresponds to a balance between optimistic and pessimistic views and negative values indicate a predominance of pessimism.

“The coronavirus pandemic has reversed the trend towards improvement seen in the region at the beginning of the year; economic climate indicators suggest that the region is entering a phase of recession,” states the report.

According to the report, Chile has an Economic Climate Index of -48.3 points, slightly above the -48.8 points of Colombia, which maintains its second place.

In the face of the crisis generated by the Covid-19 pandemic, Chile also suffered a sharp drop of 14.4 points in the Index in April. However, this was well below the average drop of 46.3 points for Latin America as a whole. As a result, Chile climbed seven places in the ranking.

This smaller relative drop, according to the FGV’s methodology, is due principally to two factors:

1. At the end of last year, Chile was already showing a drop in the context of its social crisis while the mood in the rest of the region was improving.
2. Although Chile’s drop in evaluation of the current situation was important, the outlook for future improvements, at around 30 points, remains stronger than in the rest of the region.  

“Despite the current situation, there is confidence in Chile in factors that support favorable expectations for a six-month horizon,” says Lia Valls, an economist at FGV’s Economics Institute. “Chile continues to have fewer economic restrictions than other countries in the region, such as Brazil.”

According to the study, Chile has advantages over the rest of the region because it has fewer barriers for investors and exporters and greater access to capital and there is more confidence in economic policy as well as a high level of confidence in the Central Bank. However, it received poor evaluations for insufficient demand in its markets and an increase in income inequality.

The balance of evaluations of the different aspects analyzed by the study meant that Chile replaced Paraguay which, with its high growth and rise in investment, had led the region’s business climate in recent measurements.

Paraguay was, in fact, the country most affected by the crisis of the pandemic: its index fell sharply and it dropped eight places in the ranking to ninth position. Uruguay climbed from fifth to third place while Peru dropped from third to fourth. According to the report, Venezuela and Ecuador continue to be the countries with the worst business climate.

To learn more about the Chilean economy and investment opportunities in Chile, see this article.

Source: El Mercurio