(Bloomberg) -- Chile’s economy contracted for a third straight month in May as a rebound from last year’s stagnation falters almost as soon as it began, adding to pressure on policymakers to continue interest-rate cuts.
The Imacec index, a proxy for gross domestic product, slid 0.4% in May from April, the central bank reported Monday. Activity rose 1.1% from the year before, less than the 2.5% median estimate of analysts in a Bloomberg survey.
Policymakers have slashed their key rate by 550 basis points in the past year, fueling a steep rebound in growth in the first few months of 2024. That’s since waned. Adding to pressures on the economy, the bank is now indicating a less dovish approach amid a jump in electricity prices.
On June 18, the bank’s board lowered borrowing costs by a quarter-point to 5.75%, the smallest cut since it began the easing cycle in July last year.
Earlier this month, central bank governor Rosanna Costa said inflation won’t slow to the 3% target until the first half of 2026, later than originally forecast.
In its quarterly monetary policy report, the bank raised its 2024 inflation forecast to 4.2% from 3.8% and also boosted the 2025 estimate, after the government said it would raise power prices that have been frozen since 2019.
In May, the Imacec excluding mining fell 0.5% in the month and rose just 0.2% in the year, the central bank reported today. The monthly decline was led by manufacturing, down 2.3%, and commerce, down 0.4%.
Data released Friday showed industrial production and retail sales grew less than forecast in May and manufacturing unexpectedly shrank, even as the jobless rate surprisingly dropped. Copper output was above expectations and the highest this year, rising more than 8% compared with both April and the year earlier.
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Chile’s Economy Shrinks for a Third Month as Rebound Falters - BNN Bloomberg
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