The Chilean presidential elections (November 19, run-off December 17) are the first of many that characterize Latin America’s 2017-2018 election “supercycle.” Unlike many of the other elections in the region, Chile’s is lower-risk and will not likely bring any major surprises.
FSG previously argued that economic growth in Chile will rebound in 2018 no matter the outcome of the elections. MNCs should continue to view Chile’s elections as a low-risk event, and should prioritize planning for an increase in domestic demand in 2018.
Sebastián Piñera is extremely likely to win the presidency
Every poll points to the victory of Piñera (Chile Vamos), most likely in December’s run-off. This may seem puzzling considering that he finished his previous term (2010-2014) with approval ratings below 30 percent. Why is it then that his victory is so likely?
- Piñera’s presidency is associated with a period of high economic growth. Chile averaged 4.7% real GDP growth between 2010 and 2013, compared to approximately 2% during Michelle Bachelet’s current term. That has caused low wage growth, gloomy consumer confidence, and the unfulfillment of social promises that could have been fully addressed with more economic resources. As a result, Chileans believe reigniting growth is a priority for the next president. Piñera has proven experience with this.
- Divisions in the opposition. Theoretically, a united opposition could defeat Piñera in the second round. That is unlikely to happen, however. The Christian Democrats (one of the largest parties of the center-left coalition) split from Nueva Mayoría and launched their own candidate, Carolina Goic. The party refuses to acknowledge whether they will back Alejandro Guillier (Nueva Mayoría) in the run-off. The other main opposition candidate, Beatriz Sánchez (Frente Amplio), shares little in common with Guillier. Her voters will probably abstain in the run-off between Guillier and Piñera, while Goic’s voters will split between Guillier and Piñera.
- Low voter turnout benefits Piñera. According to the think-tank Centro de Estudios Públicos (CEP), voter turn-out will probably be between 42-47% of the electorate. The potential vote share for Piñera increases as turn-out decreases since he has a larger proportion of voters who are “definitely” voting for him (29%) than Guillier (13%) or Sánchez (8%).
Chile’s economy is showing clearer signs of stronger growth in 2018
Chile’s economic environment is improving independently of the political polls. There are three economic trends that MNCs should be aware of while the election results unfold:
- Business and consumer confidence indices are improving. Both consumers and businesses have been pessimistic since mid-2014 because of policy uncertainty and poor economic growth. Confidence has improved significantly in the last two months, which will likely accelerate the execution of business and consumer transactions.
- Retail sales, especially durable goods, are increasing. B2C companies will benefit from recent robust retail sales growth (see graph below). Durable goods sales, in particular, are performing well, increasing 20.6% YOY in August in real terms.
- Higher copper prices are already paying dividends. Copper mining is improving Chile’s economic prospects in the second-half of 2017 and into 2018. Export revenues have increased approximately 10% YTD and will continue to increase alongside high copper prices. Mining production has increased on average 7% YOY during the last three months, which will further increase Chile’s export revenues. B2G companies are likely to benefit from this because of higher royalty revenues.
Actions to take
Considering the highly-likely political outcome of the November/December elections and Chile’s current economic trends, MNCs should contemplate taking these actions:
- Prepare scenarios to rapidly adjust to an increase in domestic demand. B2C and B2B companies will benefit from a better perception of Chile’s economic outlook. B2G companies could benefit in the medium-term if copper tax royalties remain high from export revenues.
- Monitor key economic indicators (confidence indices, retail sales, copper prices) instead of political polls as a barometer of Chile’s market outlook for 2018. Given the fact that probably less of Chile’s electorate will vote in the elections, the performance of those economic indicators will shape the decisions of Chilean businesses and consumers more than the election results.
FSG will continue to track the Chilean elections and market performance, and will inform clients of any sudden deviation of these trends. For our latest updates and insights, you can visit the client portal or contact your Client Services Director for more in-depth briefings.
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