Central Bank expects Chilean economy to contract this year

SANTIAGO.- The Central Bank has indicated that, for the first time in a decade, the Chilean economy could shrink this year amidst an adverse and uncertain international scenario.

The financial institution's Monetary Policy Report (IpoM) for May predicts a variation of between -0.75% and 0.25% for 2009, leaning more towards a negative figure. The Central Bank's previous report in January had estimated that the figure would be between 2% and 3%.

According to the document, a decline in the Gross Domestic Product in 2009 would be only the fifth to occur over the last 50 years. The report indicates that economic activity registered drops in 1975, 1982, 1983 and 1999.

While recalling these dates, the Central Bank report concludes that "the current situation is based on the most adverse global scenario -in financial and real terms- since the end of the war. Chile is not immune to external crises (…) nevertheless, the capacity to mitigate the cycle is substantially better than during previous episodes, given that the world crisis is being faced with solid financial conditions, appropriate regulation, an accumulation of external savings and a federal policy that is based on clear and stable guidelines".