Chile’s economy expanded the most in 15 years in the first quarter, outpacing other major Latin American economies as consumer spending jumped and manufacturing recovered from the biggest earthquake in half a century.
The economy grew 9.8 percent from a year earlier, the central bank wrote on its website today, matching the median estimate of 14 economists surveyed by Bloomberg.
South America’s fifth-largest economy is expanding faster than its potential on surging domestic demand and increased commodity exports, Alfredo Coutino, Latin America director at Moody’s Analytics, said in a research note dated today.
“Chile’s expansion is re-accelerating this year, thus keeping the economy in the overheating territory,” he wrote. “The increasing excess demand and the consequent rebound in inflation and imports are genuine signs of an overheated economy.”
Chile grew faster than its Latin American peers in the first quarter, he said in an e-mailed response to questions today. Chile would have expanded about 7 percent in the first quarter without the low base of comparison in March, trailing quarterly gains in Peru and Argentina, he said.
Growth has accelerated even as the government cuts planned spending and the central bank raises lending costs, Finance Minister Felipe Larrain told reporters today in Santiago.
The central bank has increased interest rates in 11 of its past 12 monthly meetings from a record-low 0.5 percent to 5 percent. The government will cut planned spending this year by $750 million — the equivalent of 0.4 percent of GDP.
“The central bank statement from its last meeting opens the door to a much more moderate future path for rate increases,” Larrain said. “We’re happy that efforts the government and the central bank are making are bearing fruit.”
The timing and size of future interest rate increases will depend on domestic and external macroeconomic conditions, the bank said in a May 12 statement accompanying its rate decision.
Chile’s economy grew 6.8 percent in January, 6.9 percent in February and 15.4 percent in March from the same months of 2010, the central bank said, revising previously reported figures. The economy contracted 2 percent in March 2010 after a Feb. 27 earthquake caused an estimated $30 billion damage in the $164 billion economy.
First-quarter economic growth doesn’t necessarily mean the economy is growing faster than its potential because it partially reflects a low base of comparison, Alejandro Puente, an economist with Banco Bilbao Vizcaya Argentaria SA, said.
“This elevated number for the first quarter shouldn’t bring you to the conclusion that the economy could be heating back up,” he said by phone today from Santiago. “That would ignore the fact that the base of comparison is very relevant.”
Economic growth in the first quarter also reflects increased domestic consumption and a recovery in manufacturing, he said.
Industrial production grew 4 percent in January, 1.9 percent in February and 31 percent in March from the previous year, the National Statistics Institute said in an April 28 report.
Retail sales expanded 16 percent in January, 17 percent in February and 16 percent in March versus last year, the institute said.
Current Account Surplus
Chile had a current account surplus of $722 million in the first quarter, the central bank said today. The median estimate of eight economists surveyed by Bloomberg was for Chile to report a current account surplus of $408 million.
Chile’s peso gained 0.6 percent to 471.20 per U.S. dollar at 12:22 p.m. New York time from yesterday’s close of 473.97.
The economy expanded 5.2 percent last year, the fastest pace in five years, and could expand 5.5 percent to 6.5 percent in 2011, according to central bank forecasts.
Chile will post the third-fastest gain in South American output this year at 5.9 percent, trailing Peru and Argentina, the International Monetary Fund said in a May 3 report.
Chile’s economic growth is not creating excessive inflationary pressures, which largely are coming from international markets, the central bank’s chief economist, Luis Oscar Herrera, told a conference in Santiago on May 4.
“The evidence for overheating that can be deduced from the recent evolution of inflation is weak,” he said.
Consumer prices grew 3.2 percent in April and 3.4 percent in March from the previous year, the National Statistics Institute said in a May 6 report.
The central bank, which targets annual inflation of 3 percent plus or minus 1 percentage point, estimates consumer prices will grow 4.3 percent in December from last year. Policy makers in their previous report, published on Dec. 20, estimated annual inflation would reach 3.3 percent in December 2011.
Higher fuel prices account for 0.7 percentage point of the increase in inflation estimates, the central bank said in its latest monetary policy report. West Texas Intermediate crude prices rose 14 percent in the first quarter.