As President-elect Michelle Bachelet prepares to take power in March, she will be tasked with responding to domestic demands for improved access to lower-cost, higher quality public services, including education and healthcare, and helping Chile to weather the impact of exchange rate depreciation and slowing growth, driven in part by weaker global copper prices.
Multinationals will be impacted by these dynamics in two primary ways:
- Rising domestic demands and the need to fund ambitious education and healthcare reforms ensure that fiscal reform will be a priority. Corporate taxes are likely to rise from 20% to 25%, but Chile’s pro-market stance and sound economic management are expected to remain in place.
- Currency depreciation and weaker copper prices will drag down gross fixed investment and pose pricing and profitability challenges for companies importing into the market. Companies selling capital-intensive goods and machinery will be most impacted, but the pass-through effects will be visible across the economy and will drag down expectations at the margins.
In general, the stage is set for slower, yet steady growth. Given strong labor market dynamics and relatively moderate price pressures, domestic demand will remain resilient, boding well for retailers. FSG clients can access our full Q1 quarterly report on Chile here.