Chile's economy is growing steadily in an environment of low inflation, stable external accounts, declining levels of public external debt and strong international reserves. In addition, pro-business economic policies based on free trade and investment, and conservative fiscal policies support Chile's export-oriented economy.

GDP Growth
The Chilean economy experienced an average annual GDP growth rate of 6.4% between 1990 and 2000, the highest in Latin America and one of the highest in the world. In 1999, the economy contracted by 1.1% as a result of the Asian crisis and resulting decline in world commodity prices, particularly copper. However, monetary and fiscal measures were taken to avoid serious injury to the economy. According to Standard & Poor's Sovereign Rating Report for Chile, "the 1999 recession was mild and short-lived. There were no major distortions in the Chilean economy, and sound and consistent economic policies have sustained high savings and productivity growth rates."

Chile returned to its growth path in 2000, registering GDP growth of 5.5%. Growth slowed to 2.1% in 2002, as exports of goods and services stagnated, copper export volumes fell and tourist arrivals from Argentina declined by about 70%. Confidence returned gradually in the second half of 2002, driven by economic recovery in the United States and Free Trade Agreements signed with the U.S. and the European Union. Brighter prospects for the global economy, including a sustained recovery in Chile's terms of trade, should combine with slow domestic deregulation to stimulate a surge in export growth and in investment in fixed assets during the next several years.
GDP growth was 3.3% in 2003 and was estimated to be 6.1% in 2004, the highest in 7 years, largely due to a 7.9% increase in domestic demand and to a rise in investment to the equivalent of 25.2% of GDP. Additionally, per capita GDP stood at US$ 5,900 in 2004, representing a 9.5 percent real increase from 2003. GDP growth for 2005 is forecasted at 5.5%.

International Trade
During the last fifteen years, economic growth has been fueled primarily by exports, which have increased by 400% while production has increased by only 20%. This growth has benefited Chile's domestic market tremendously. In 1975, only 200 companies exported, with 200 products serving 50 foreign markets. In 2004, Chile had 6,600 exporters, serving 185 countries with 5,200 different products. This growth has been a result of uni-lateral tariff reduction (the most recent round of import tariff reductions culminated in 2003 with a flat rate of 6% for all countries without trade agreements), the pursuit of bilateral Free Trade Agreements (Chile has FTAs with Canada, Mexico, the European Union, the United States, South Korea, and Costa Rica and El Salvador as part of a Central American agreement), the pursuit of complimentary trade agreements with other South American countries, and participation in multi-lateral associations such as ALADI (Latin American Integration Association) and as an associate member of Mercosur.

In following, since 1975, the dollar value of Chilean exports has increased almost twenty-fold, from US$ 1.6 billion in 1975 to US$ 31 billion in 2004 (53.4% growth with respect to 2003). The Central Bank is estimating 2005 exports to grow to US$ 33.4 billion in 2005. Chile's exports to the countries and trade blocs with which it has signed trade agreements - European Union, the U.S., Canada, Mexico, Mercosur, the Andean Community, Central America, South Korea and the EFTA member countries - were US$ 20,757 million in 2004, accounting for 66% of the total. Chile's exports to countries
including China, India and Japan, stood at US$10.703 million 2004. Chile is
recently signed trade agreements with China, Japan and India
as well as New Zealand and Singapore, in order to expand its network commercial agreements to Asia and the Pacific.

In a parallel manner, imports have expanded over the course of Chile’s trade liberalization, with more than 26,600 companies importing 6,700 products from 163 countries in 2004. Their dollar value reached US$22,339 million in 2004, up 28.9% with respect to 2003. The countries with which Chile had signed trade agreements accounted for 77.1% of this total.

The country's dependence on copper as its principal export product has dropped significantly, from 58% of total exports in 1976 to 47% in 2004. China’s enduring demand for copper, Chile’s largest and most important export, has had a positive effect on the country’s rapid export growth. China bought so much copper in 2004 that it depleted worldwide supplies of the metal and drove up its price on metal markets. While copper production has increased with efficient technologies, Chile has also made a concerted effort to diversify its export industry. In 2003 and 2004, exports have also been stimulated by Chile’s Free Trade Agreements with the EU, U.S. and South Korea. As an example, exports to the United States grew by 31.7% in 2004, the first year of the FTA. For more information on the effects of the U.S.-Chile FTA, see the following links:

Year Report 2005

Inflation
Inflation has fallen consistently for the past ten years, dropping from 27.3% in 1990 to 2.4%
in 2004. Price stability has been achieved thanks to the rigorous monetary policy applied by an autonomous and independent Central Bank, as well as disciplined and balanced fiscal management. In January 2005, the Central Bank forecasted a 2.0% and 2.9% increase in the Consumer Price Index rate in 2005 and 2006, respectively, remaining within the Central Bank's medium term target of 2 - 4%.

Unemployment
The unemployment rate in 2004 was slightly under 8.6%, maintaining private consumption below potential levels. Consensus Forecast expects the unemployment rate to decline and reach 7.7% by the end of 2005. Unemployment is Chile’s poorest-performing macroeconomic indicator, although it has fallen from a high of 11.5% in 1999. Chile’s labor reform of 2002 increased legal protection of workers in cases of unjust termination; granted more protection to workers in terms of the right to unionize; and lowered the work week from 48 to 45 hours beginning January 1, 2005, among other things. Chile’s Congress has been debating various bills to allow for more flexible work schedules and schemes since that time.

Source: Research Department, AmCham