News / Americas

Amid Slowdown, Chileans Adjust to New Economic Reality

An employee arranges a shop window inside a bakery in a working-class neighborhood nearby downtown Santiago, Chile, Aug. 19, 2014.
An employee arranges a shop window inside a bakery in a working-class neighborhood nearby downtown Santiago, Chile, Aug. 19, 2014.
Reuters

When Betty Villalta opened her bakery in a working-class neighborhood of Santiago four years ago, she thought her business was pretty much recession proof.

But in recent months she has been selling pastries in the street to keep the money coming in as bread sales have slid and flour prices have risen. Three businesses on her street have closed their doors this year.

"They say food, and especially bread, is something people need, that it has to be eaten. But that's not the reality, now they are even saving on bread," she said.

Villalta is not alone. When mining investment first began to cool in top copper exporter Chile last year, consumer sales remained robust. But now the slowdown is being felt hard in the wider economy, compounded by a weaker peso currency that means the cost of imported goods has risen.

Last month, data showed consumer sentiment turned negative for the first time in two years, sales of new cars have tumbled and retail sales growth has decelerated from double digits a year ago to an anemic 2.3 percent.

Most economists now predict overall growth in Chile's economy of between 2.0 and 2.5 percent this year, down from 4.1 percent in 2013.

"There is evidently a pretty big deceleration," said Bernadita Silva from Chilean retail business chamber CNC.

"There are two things going on: people are buying less, they are definitely buying less, that is clear, and in supermarkets perhaps they are substituting or looking for other channels, like going to a market."

Copper Reliance

Many of Latin America's commodities-reliant economies have struggled this year, hit by worries about Chinese growth and the withdrawal of U.S. monetary stimulus.

In recent years, bond-buying by the U.S. Federal Reserve and international low borrowing rates helped fuel gains in commodities like copper as investors sought alternatives to low-yielding assets. A more recent recovery of the U.S. economy and tighter monetary policy is reversing this effect.

People walk past a commercial area in downtown Santiago, Aug. 25, 2014.People walk past a commercial area in downtown Santiago, Aug. 25, 2014.
x
People walk past a commercial area in downtown Santiago, Aug. 25, 2014.
People walk past a commercial area in downtown Santiago, Aug. 25, 2014.

Chile, one of the region's most developed and open economies, is particularly susceptible to these factors.

Its income is heavily dependent on the veins of copper that snake under its arid, high-altitude Andean north. Of the around $77 billion of goods Chile exported in 2013, over $40 billion was in copper, according to central bank figures.

Nearly half of global demand for the metal comes from China.

But as China's housing market has slowed, demand for copper and the copper price have fallen in tandem, and investment in mining has dried up. Low ore grades and high energy costs make Chilean copper particularly expensive to produce.

As investors see Chile as a less attractive prospect and the central bank has cut the benchmark interest rate to stimulate the economy, the peso has weakened, falling to a five-year low against the dollar, making imports more expensive and driving up inflation.

For Cristina Galindo, who runs a printer supplies store in an affluent Santiago neighborhood, that means the cost of the imported printer cartridges she sells has risen sharply, leading her clients to switch to cheaper refills.

"Honestly, I was about to close my business and had to pay the expenses with my own money," she said. In order to save costs, she has dismissed her only employee.

Recovery Risk

Although Chile's overall unemployment rate, at 6.5 percent, is still near historic lows, BCI economist Antonio Moncado said the number hides a different story: that lower-paid, poorer-quality jobs were increasingly replacing better ones.

"If that continues in the coming months ... we could find ourselves with an environment where families have less disposable income and probably consumer data is going to continue deteriorating," he said.

Chile's bigger retail companies have so far emerged largely unscathed from the slowdown, but that may change as lower consumer spending feeds through to earnings and heavier-than-usual discounting eats into margins, analysts say.

Larger retailers like market leader Falabella and supermarket and home improvement group Cencosud have expanded throughout the region, making them less exposed to a downturn in one country, although Chile still accounts for nearly three-quarters of Falabella's earnings and over half of Cencosud's.

Reform Drive

President Michelle Bachelet's center-left government, which took power in March, plans to push through a package of wide-ranging reforms, although business leaders and the right-wing opposition say now is not the time for new legislation that could weigh on investment.

In particular, they say a tax reform bill currently going through Congress creates short-term headwinds due to uncertainty and increased bills for business in the longer term.

FILE - Chile's President Michelle Bachelet applauds as she attends a wreath-laying ceremony in Buenos Aires, May 12, 2014.FILE - Chile's President Michelle Bachelet applauds as she attends a wreath-laying ceremony in Buenos Aires, May 12, 2014.
x
FILE - Chile's President Michelle Bachelet applauds as she attends a wreath-laying ceremony in Buenos Aires, May 12, 2014.
FILE - Chile's President Michelle Bachelet applauds as she attends a wreath-laying ceremony in Buenos Aires, May 12, 2014.

But Bachelet and her ministers insist the bill is needed to pay for education and health reforms as part of a broader drive to tackle inequality. Significant changes to the agenda could cost the government dearly at the polls and in the streets, where social movements are demanding change.

Still, Chile's economy has not entered recession and the shopping malls that dot Santiago, filled with well-known U.S. brands, hum with activity.

"People still continue going because they really like to go shopping, to visit the mall," said the CNC's Silva. "The point is, are they buying?"

You May Like

Philippines, Muslim Rebels Try to Salvage Peace Pact

Peace process faces major setback after botched military operation to find terrorists results in bloody gunbattle between government forces, Moro Islamic Liberation Front fighters More

Republicans Expect Long, Expensive Presidential Battle

Political strategist says eventual winner will be one who can put together strongest coalition of various conservative groups that make up Republican Party More

Video New Wheelchair Is Easier to Use, Increases Mobility

Engineers have come up with a lever-operated design that makes use of easily accessible bicycle technology More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Liberia's Almost Last Ebola Patient Grateful but Still Grievingi
X
Benno Muchler
March 26, 2015 3:41 PM
Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.
Video

Video US, South Korea Conduct Joint Military Exercises

The Eighth U.S. Army Division and the Eighth Republic of Korea Mechanized Infantry Division put on a well orchestrated show of force for the media this week during their joint military training exercises in South Korea. VOA’s Seoul correspondent Brian Padden was there and reports the soldiers were well disciplined both in conducting a complex live fire exercise and in staying on message with the press.
Video

Video Space Program Status Disappoints 'Last Man on the Moon'

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.
Video

Video Young Filmmakers Shine Spotlight on Giving Back

A group of student filmmakers from across the United States joined President Barack Obama at the White House this month for the second annual White House Student Film Festival. Fifteen short films were officially selected from more than 1,500 entries by students aged 6 through 18. The filmmakers and their families then joined the president and a group of celebrities for a screening of their films. VOA’s Julie Taboh reports.
Video

Video VOA Exclusive: Interview with Afghan President Ashraf Ghani

Afghan President Ashraf Ghani, during his first visit as president to Washington, gave a one-on-one interview with VOA Afghan Service reporter Said Suleiman Ashna, about his request for a change in U.S. troop levels, the threat from the Islamic State, and repairing relations with the United States and Pakistan. The interview was held at Blair House, late Sunday, in Pashto.
Video

Video California Science Center Tells Story of Dead Sea Scrolls

The ancient manuscripts were uncovered in the mid-20th century, and they are still yielding clues about life and religious beliefs in ancient Israel. As VOA's Mike O'Sullivan reports, an exhibit in Los Angeles shows how modern science is bringing the history of these ancient documents to life.
Video

Video Angelina Jolie Takes Another Bold Step

Hollywood actress and filmmaker Angelina Jolie has revealed she had her ovaries and fallopian tubes removed to lower her odds of getting cancer. Doctors say the huge publicity over her decision will help raise awareness about the importance of cancer screening. VOA’s George Putic has more

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

More Americas News

US, Cuba Teams Discuss Telecommunications Issues

US delegation visited Cuba this week as the two nations continued efforts to restore diplomatic relations broken over 50 years ago
More

Egyptian Court Adjourns Trial of Al Jazeera Journalists to April 22

Two journalists are charged with aiding a terrorist organization, a reference to the Muslim Brotherhood, which Egypt banned following 2013 army takeover
More

Rio Exhibition Dramatizes Olympian Bay Cleanup Task

Display highlights problem of trash in Guanabara Bay, where sailing, windsurfing events are to take place in next Summer Games
More

Chile Says Drought Permanent, Lays Out Water Plan

President Michelle Bachelet says government will invest in desalinization plants and reservoirs to ensure access to potable water
More

Poll: Venezuelan Leader's Popularity Inches Up to 25%

Rise comes after United States declared Venezuela a security threat and ordered sanctions against seven officials
More

High Winds, Drought Feed Chilean Forest Fires

Blazes have ravaged swaths of China Muerta and Nalca Lolco reserves and Conguillio national park, revered for its ancient forests
More