Chilean Central Bank Lowers 2026 GDP Forecast Amid Economic Weakness

The Central Bank of Chile has reduced its GDP growth forecast for 2026 to a range of 0.25% to 0.75%, down from a previous projection of 1% to 1.75%. According to the September Monetary Policy Report (IPoM), the economy has shown weak performance throughout the year. The first quarter was primarily affected by supply factors, while the second quarter saw a decline due to weak demand, a deteriorating labor market, falling confidence indicators, and rising fuel costs. Adverse weather conditions further impacted economic performance in the third quarter.

Inflation is projected to reach 4.3% by the end of 2026, slightly higher than the 4.2% forecast in June. The bank attributes this trend to the rising cost of fuels, which has been pressured by conflict in the Middle East. Despite the short term slowdown, the bank expects growth to accelerate in later years, projecting GDP between 2% and 3% for 2027 and between 2.25% and 3.25% for 2028.

This projected recovery is linked to legislative measures. One report attributes the expected stimulus to a tax and economic reform led by Jose Antonio Kast, while another refers to it as the Reconstruction Law. These measures are expected to boost investment and internal demand starting next year.

The labor market remains a significant concern, with the unemployment rate reaching 9.5%. The Central Bank attributes this high rate to a combination of cyclical factors and persistent structural issues. These include increased labor costs, the acceleration of technological automation, and a failure to fully recover employment levels seen prior to the pandemic. The bank noted that Chile has shown a particularly unfavorable evolution of labor variables since 2020 compared to international trends.