(Bloomberg) -- Chile’s economy expanded at the fastest pace on record last year, driven by billions of dollars in emergency stimulus measures that the government is now unwinding as the economy emerges from the pandemic and inflation accelerates.
Gross domestic product grew 11.7%, the most in central bank records going back to 1961, according to data released on Friday. The economy expanded by 1.8% in the fourth quarter from the previous three-month period, below the 2.2% median estimate of analysts in a Bloomberg survey.
Chile boomed last year as one of the world’s fastest vaccination drives against Covid-19 propelled the economic reopening, at the same time that fiscal stimulus and a series of early pension withdrawals stoked consumer demand. Retail was one of the first sectors to benefit, followed by services. Still, the growth outlook is murkier this year, as the central bank delivers a series of aggressive interest rate hikes and inflation soars.
Domestic demand rose 3.8% on the fourth quarter from the previous three months, while mining grew 1.4% over the same period, according to the central bank.
Political uncertainty may weigh on growth this year. On March 11, Gabriel Boric was sworn in as Chile’s youngest president ever and its most left-wing head of state in 50 years. He has vowed tax, labor and pension reforms, while pledging to control public debt, at the same time that the country is writing up a new constitution.
Boric has also said he will oppose any attempt for more pension fund withdrawals. Three rounds of drawdowns have pumped about $50 billion into the economy, fueling a surge in the consumption of goods from automobiles to electronics, while also stoking inflation.
While the previous administration said GDP will grow 3.5% in 2022, the new Finance Minister Mario Marcel told the local press on Thursday that those estimates are not “reasonable” and “aren’t consistent with the adjustment the economy should have this year to control inflation.”
Consumer prices rose 7.8% in the year through February, well above the 3% target. Policy makers have raised borrowing costs by 500 basis points since July and are expected to deliver another aggressive hike later this month.
©2022 Bloomberg L.P.
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