(Bloomberg) -- Chile’s economy expanded more than forecast in the third quarter led by the mining sector, as the central bank started easing monetary policy. 

Gross domestic product rose 0.6% in the July-September period from a year earlier, more than the 0.2% median forecast from analysts in a Bloomberg survey. The economy grew 0.3% compared to the prior three months, the central bank reported Monday.

Mining output rose 4.6%, while the rest of the economy suffered a slight contraction, of 0.1%, the bank said in its report. Construction activity fell by 0.8%, while the category including wholesale, retail, restaurants and hotels tumbled by 2.9%. Manufacturing output shrank by 1.2%. 

The central bank started cutting rates in July, as inflation slows toward target. Even after the better-than-forecast third quarter expansion, Chile’s economy is on track for near-zero growth this year, the worst performance among major Latin American countries after Argentina. 

“Given tight monetary policy, decelerating inflation and well-anchored inflation expectations, we expect the central bank to continue cutting interest rates into 2024. The positive output gap narrowed from the previous quarter, but upward revisions to prior GDP figures mean it was still wider than policymakers estimated. That, along with tight external financing conditions, reduces policy flexibility and makes it less likely policymakers revert to rate cuts of more than 50 basis points per meeting.”

— Felipe Hernandez, Latin America economist

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Read more: Chile Prices Rise Less Than Expected, Defying Peso Weakness

The government last month cut its 2023 growth estimate to 0%, according to the Public Finances Report presented congress. The government trimmed its estimate from 0.2% though it kept its forecast for 2.5% growth next year.

“Growth likely will gather momentum thanks to falling inflation, lower interest rates, and improving conditions for key exports,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a note. “But the ongoing deterioration of the labor market, and increased political noise, driven by the end of the constitutional saga, will limit the recovery over the next three months.”

Policymakers have cut the key rate by a total of 2.25 percentage points at their last three meetings, to 9%. 

--With assistance from Rafael Gayol.

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