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

Video Snowstorm Sweeps Northeastern US

'This is nothing like we feared it would be,' New York City Mayor Bill de Blasio says; he had warned storm could be one of worst in city history More

Millions of Displaced Nigerians Struggle With Daily Existence

Government acknowledges over a million people displaced in 2014 due to fight against Boko Haram insurgency More

Facebook: Internal Error to Blame for Outages

Temporary outage appeared to spill over and temporarily slow or block traffic to other major Internet sites More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Obama Urges Closer Economic Ties During Historic India Visiti
X
Aru Pande
January 26, 2015 9:33 PM
U.S. President Barack Obama says the United States and India must do better to capitalize on untapped potential in their economic relationship - by removing some of the roadblocks to greater trade and investment. As VOA correspondent Aru Pande reports from New Delhi, Obama spoke after participating in India’s Republic Day celebration.
Video

Video Obama Urges Closer Economic Ties During Historic India Visit

U.S. President Barack Obama says the United States and India must do better to capitalize on untapped potential in their economic relationship - by removing some of the roadblocks to greater trade and investment. As VOA correspondent Aru Pande reports from New Delhi, Obama spoke after participating in India’s Republic Day celebration.
Video

Video US, EU Threaten New Russia Sanctions Over Ukraine

U.S. President Barack Obama has blamed Russia for an attack by Ukrainian separatists that left dozens dead in the port of Mariupol and cast further doubt on the viability of last year’s cease-fire with the Kyiv government. VOA’s Michael Bowman reports from Washington.
Video

Video White House Grapples With Yemen Counterterrorism Strategy

Reports say the U.S. has carried out a drone strike on suspected militants in Yemen, the first after President Barack Obama offered reassurances the U.S. is continuing its counterterrorism operations in the country. The future of those operations has been in question following the collapse last week of Yemen’s government. VOA White House correspondent Luis Ramirez reports.
Video

Video Kerry Warns Against Violence in Nigeria Election

US Secretary of State John Kerry visited Nigeria Sunday in a show of the level of concern within the U.S. and the international community over next month’s presidential election. Chris Stein reports.
Video

Video Zoo Animals Show Their Artistic Sides

The pursuit of happiness is so important, America's founding fathers put it in the Declaration of Independence. Any zookeeper will tell you animals need enrichment, just like humans do. So painting, and even music, are part of the Smithsonian National Zoo's program to keep the animals happy. VOA’s June Soh met some animal artists at the zoo in Washington. Faith Lapidus narrates.
Video

Video Worldwide Photo Workshops Empower Youth

Last September, 20 young adults from South Sudan took part in a National Geographic Photo Camp. They are among hundreds of students from around the world who have learned how to use a camera to tell the stories of the people in their communities through the powerful medium of photography. Three camp participants talked about their experiences recently on a visit to Washington. VOA’s Julie Taboh reports.
Video

Video Saudi, Yemen Developments Are Sudden Complications for Obama

The death of Saudi Arabia's King Abdullah and the collapse of Yemen’s government have cast further uncertainty on U.S. efforts to fight militants in the Middle East and also contain Iran’s influence in the region. VOA White House correspondent Luis Ramirez reports on the new complications facing the Obama administration and its Middle East policy.
Video

Video Progress, Some Areas of Disagreement in Cuba Talks

U.S. and Cuban officials are reporting progress from initial talks in Havana on re-establishing diplomatic ties. U.S. Assistant Secretary of State (for Western Hemisphere Affairs) Roberta Jacobson said while there was agreement on a broad range of issues, there also are some “profound disagreements” between Washington and Havana. VOA State Department correspondent Pam Dockins has the story.
Video

Video US, Japan Offer Lessons as Eurozone Launches Huge Stimulus

The Euro currency has fallen sharply after the European Central Bank announced a bigger-than-expected $67 billion-a-month quantitative easing program Thursday - commonly seen as a form of printing new money. Henry Ridgwell reports for VOA from London on whether the move might rescue the eurozone economy -- and what lessons have been learned from similar programs around the world.
Video

Video Nigerian Elections Pose Concern of Potential Conflict in 'Middle Belt'

Nigeria’s north-central state of Kaduna has long been the site of fighting between Muslims and Christians as well as between people of different ethnic groups. As the February elections approach, community and religious leaders are making plans they hope will keep the streets calm after results are announced. Chris Stein reports from the state capital, Kaduna.
Video

Video As Viewership Drops, Obama Puts His Message on YouTube

Ratings reports show President Obama’s State of the Union address this week drew the lowest number of viewers for this annual speech in 15 years. White House officials anticipated this, and the president has decided to take a non-traditional approach to getting his message out. VOA White House correspondent Luis Ramirez reports.
Video

Video S. Korean Businesses Want to End Trade Restrictions With North

Business leaders in South Korea are calling for President Park Geun-hye to ease trade restrictions with North Korea that were put in place in 2010 after the sinking of a South Korean warship.Pro-business groups argue that expanding trade and investment is not only good for business, it is also good for long-term regional peace and security. VOA’s Brian Padden reports.

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

All About America

AppleAndroid

More Americas News

Mexico Confirms Missing Students Murdered by Drug Gang

Until now, the government had said only that the students were almost certainly murdered after clashing that night with corrupt police officers
More

Twin Chicago Traffickers-Turned-Informants Sentenced

Pedro and Margarito Flores get 14-year terms in exchange for cooperating in a case against Mexican drug cartel leaders
More

Chile's Bachelet Prepares Next Phase of Education Reform

After eight months of intense debate, Lower House approves first part of multi-pronged reform, which includes end to profits at state-subsidized schools
More

Fidel Castro Appears to Lend Support to Cuba Talks with US

Castro said his long-standing hostility to the US did not mean 'rejection of a peaceful solution'
More

Argentine President Plans to Dissolve Spy Agency

Suspicions abound that rogue agents were behind the mysterious death of a state prosecutor investigating the 1994 bombing of a Jewish community center
More

Peru's Congress Repeals Labor Reform Law

Move comes after thousands took to the streets to protest legislation that cut benefits for young workers, part of reforms aimed at reviving the economy
More