(Bloomberg) -- Chile’s economy recorded the fastest quarterly growth since 2021, when government stimulus fueled domestic demand during the pandemic, as both mining output and consumption increased while slowing inflation and falling interest rates provided much-needed relief.

Gross domestic product rose 1.9% in the first quarter compared with the prior three months, a tad less than the 2% median forecast from analysts in a Bloomberg survey. From a year ago, the economy expanded 2.3%, the central bank reported on Monday.

The report comes days after Chile’s government raised its 2024 growth estimate to 2.7% on stronger-than-expected data across sectors and surging prices of copper, the nation’s top export. The central bank is also supporting activity with its nearly yearlong monetary easing cycle, and will likely cut interest rates again on May 23. Still, some sectors such as construction are lagging, and the labor market remains weak.

Read more: Chile Raises 2024 Economic Growth Forecast as Copper Prices Soar

What Bloomberg Economics Says

“Recovering consumption and higher inventories bolstered quarterly Chile GDP growth at the start of the year, signaling a wide positive output gap. Monthly data had indicated activity was losing momentum after strong gains early in 2024. We expect growth to slow from the second quarter.”

— Felipe Hernandez, Latin America economist

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Domestic demand jumped 2.1% in the January-March period after slipping 0.4% in the fourth quarter, according to the central bank. Mining activity soared 6.9% during the first three months of 2024.

Capital Economics raised its Chile 2024 GDP growth forecast to 2.8% from 2.3% after the release of the data. 

“The strength in domestic demand was reflected in a solid rebound in imports,” Kimberley Sperrfechter, Emerging Markets Economist at Capital Economics, wrote in a note. “Fixed investment remained the weak spot, contracting for a fourth consecutive quarter.”

Economic Opportunities

Copper, lithium and green hydrogen are some of the industries driving opportunities in Chile, President Gabriel Boric said at an event last week. He added the economy should have the capacity to grow more than estimates show.

The government this month raised its 2024 copper forecast to $4.20 per pound from $3.84 and expects the average price to remain steady through 2028.

On the other hand, housing construction permits, a key gauge of activity in the real estate sector, are near a historic low, according to Chile’s National Statistics Institute. Unemployment remains above pre-pandemic levels, at 8.7%. Furthermore, some factors behind recent economic growth, such as electricity generation, may prove to be temporary.

Read more: Chile Real Estate Crash Deepens as Toesca Ends $215 Million Fund

Both traders and economists surveyed by the central bank expect the monetary authority to deliver a half-point rate cut this week. Policymakers have already lowered borrowing costs by 4.75 percentage points since July.

--With assistance from Rafael Gayol and Giovanna Serafim.

(Updates with Bloomberg economist comments in fourth paragraph)

©2024 Bloomberg L.P.