Chile's economy demonstrates resilience despite global shocks, but faces elevated uncertainty, particularly from potential protracted conflict in the Middle East. The IMF staff recommends tightening monetary policy if inflation persists, alongside a focus on fiscal consolidation to ensure sustainability and protect vulnerable groups. Medium-term priorities include strengthening fiscal space and implementing reforms under the National Reconstruction Plan to durably boost growth.
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Near-term policy priorities include a readiness to tighten monetary policy if the war in the Middle East becomes protracted.
Achieving these fiscal objectives will require cumulative fiscal efforts of 2-3 percentage points of GDP.
Closing this gap to the OECD median could raise aggregate productivity by 3 percent through a better distribution of talent.
The government's agenda to facilitate private investment and employment is set to support medium-term growth in Chile.
Over the medium-term, policy priorities are to strengthen fiscal space.
Over the medium-term, policy priorities are to durably lift Chile's growth.
The credibility of Chile's strong policy institutions is particularly important in tackling structural challenges.
Economic activity in Chile was led by investment and exports in 2025.
Near-term policy priorities include providing fiscal support for the most vulnerable groups if the war in the Middle East becomes protracted.
The growth outlook for 2026-27 is supported by higher copper prices and production.
The surge in oil prices presents headwinds to the growth outlook for 2026-27.
Tighter global financial conditions present headwinds to the growth outlook for 2026-27.
Real GDP growth in Chile is projected at 2.2 percent in 2026.
Real GDP growth in Chile is projected at 2.5 percent in 2027.
Inflation in Chile is set to exceed the target temporarily in 2026 due to higher oil prices.
Economic activity in Chile faces a period of elevated uncertainty.
This agenda includes cutting red tape, lowering labor costs, and reducing the corporate income tax (CIT) in a phased manner.
Inflation in Chile is set to exceed the target temporarily in early 2027 due to higher oil prices.
Current account deficits in Chile are projected to narrow in 2026, driven by higher copper prices.
Current account deficits in Chile are projected to widen to 2-2.5 percent of GDP in the medium term.
The widening of current account deficits in the medium term is as real copper prices revert toward the historical average.
Risks to growth in Chile are tilted to the downside in the near term.
Risks to growth in Chile are balanced over the medium term.
Protracted hostilities in the Middle East could keep oil prices higher for longer.
Protracted hostilities in the Middle East could weigh heavily on growth through lower disposable income.
Protracted hostilities in the Middle East could weigh heavily on growth through disruptions to production.
Protracted hostilities in the Middle East could weigh heavily on growth through tighter financial conditions.
Other external downside risks to growth in Chile include trade tensions.
Other external downside risks to growth in Chile include disorderly corrections in the outlook related to AI-led productivity gains.
Persistently high copper prices represent the key upside risk to growth in Chile.
These GDP growth projections assume a gradual fiscal consolidation.
High copper prices are due to structurally higher demand from the green transition, AI-related infrastructure, and defense spending.
These GDP growth projections assume improvements in external conditions.
Under an upside scenario, IMF staff projects growth in Chile to reach around 3 percent during 2027-30.
The upside scenario assumes sustained high copper prices in the US$ 5.5-6.0 per pound range.
The upside scenario assumes implementation of investment-enhancing reforms under the National Reconstruction Plan.
More than half of the impulse in the upside growth scenario is associated with copper prices.
Across-the-board sharp public spending cuts risk limiting space for productivity-enhancing spending such as childcare.
Social discontent remains a risk amid persistent high inequality in Chile.
Putting the fiscal position on a credible consolidation path would help ensure fiscal sustainability in Chile.
Putting the fiscal position on a credible consolidation path would enable protection of the most vulnerable in Chile.
The new government has unveiled an ambitious plan to bolster Chile's fiscal position.
Under current policies, IMF staff projects the headline deficit in Chile in 2026 to reach about 2.5 percent of GDP.
Identified expenditure cuts via administrative measures of around 0.5 percent of GDP in 2026 are incorporated in full in the IMF staff baseline.
The quick and decisive capping of the oil price stabilization mechanism underscores the government's commitment to contain spending pressure.
The oil price shock will still weigh on the fiscal accounts in Chile.
The government's objective of reaching a broadly balanced structural position by 2030 is welcome.
The government's objective of keeping the debt-to-GDP ratio below 45 percent is welcome.
These policy priorities reflect the government's core objectives under its National Reconstruction Plan.
Without such efforts, IMF staff projects the government debt-to-GDP ratio in Chile to move above 45 percent in 2028.
The authorities' medium-term fiscal strategy includes further administrative spending cuts (0.3 percent of GDP).
The authorities' medium-term fiscal strategy includes a comprehensive tax and spending package as part of the National Reconstruction Plan.
The National Reconstruction Plan is estimated to have a net fiscal cost of 0.2 percent of GDP by 2030.
The plan's estimated fiscal cost includes the growth-enhancing impact of the reforms.
Expenditure-side measures in the plan include curbing abuse of public-sector medical leave.
Expenditure-side measures in the plan include reducing the size of the public workforce.
Expenditure-side measures in the plan include eliminating low-performing programs.
Revenue-side measures aim to lift investment through a gradual reduction in the CIT rate from 27 to 23 percent.
Revenue-side measures include a tax credit targeting firms employing low-income workers.
The credibility of Chile's strong policy institutions is especially valuable in responding to global shocks.