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 One Year After Thai Coup, No End in Sight for Military Rule

Since carrying out the May 22, 2014 coup, the general has retired from the military but is still firmly in charge More

Goodbye, New York

This is what the fastest-growing big cities in America have in common More

Job-Seeking Bangladeshis Risk Lives to Find Work

The number of Bangladeshi migrants on smugglers’ boats bound for Southeast Asian countries has soared in the past two years More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Turkey's Main Opposition Party Hopes for Election Breakthroughi
X
May 22, 2015 10:23 AM
Turkey’s main opposition Republican People’s Party has sought an image change ahead of the June 7 general election. The move comes after suffering successive defeats at the hands of the Islamist-rooted AK Party, which has portrayed it as hostile to religion. Dorian Jones reports from the western city of Izmir.
Video

Video Turkey's Main Opposition Party Hopes for Election Breakthrough

Turkey’s main opposition Republican People’s Party has sought an image change ahead of the June 7 general election. The move comes after suffering successive defeats at the hands of the Islamist-rooted AK Party, which has portrayed it as hostile to religion. Dorian Jones reports from the western city of Izmir.
Video

Video Europe Follows US Lead in Tackling ‘Conflict Minerals’

Metals mined from conflict zones in places like the Democratic Republic of Congo are often sold by warlords to buy weapons. This week European lawmakers voted to force manufacturers to prove that their supply chains are not inadvertently fueling conflicts and human rights abuses. Henry Ridgwell reports from London.
Video

Video Class Tackles Questions of Race, Discrimination

Unrest in some U.S. cities is more than just a trending news item at Ladue Middle School in St. Louis, Missouri. As VOA’s Kane Farabaugh reports, it’s a focus of a multicultural studies class engaging students in wide-ranging discussions about racial tensions and police aggression.
Video

Video Mind-Controlled Prosthetics Are Getting Closer

Scientists and engineers are making substantial advances towards the ultimate goal in prosthetics – creation of limbs that can be controlled by the wearer’s mind. Thanks to sophisticated sensors capable of picking up the brain’s signals, an amputee in Iceland is literally bringing us one step closer to that goal. VOA’s George Putic reports.
Video

Video Afghan Economy Sinks As Foreign Troops Depart

As international troops prepare to leave Afghanistan, and many foreign aid groups follow, Afghans are grappling with how the exodus will affect the country's fragile economy. Ayesha Tanzeem reports from the Afghan capital, Kabul.
Video

Video Poverty, Ignorance Force Underage Girls Into Marriage

The recent marriage of a 17-year old Chechen girl to a local police chief who was 30 years older and already had a wife caused an outcry in Russia and beyond. The bride was reportedly forced to marry and her parents were intimidated into giving their consent. The union spotlighted yet again the plight of many underage girls in developing countries. Zlatica Hoke reports poverty, ignorance and fear are behind the practice, especially in Asia and Africa.
Video

Video South Korea Marks Gwangju Uprising Anniversary

South Korea this week marked the 35th anniversary of a protest that turned deadly. The Gwangju Uprising is credited with starting the country’s democratic revolution after it was violently quelled by South Korea’s former military rulers. But as Jason Strother reports, some observers worry that democracy has recently been eroded.
Video

Video California’s Water System Not Created To Handle Current Drought

The drought in California is moving into its fourth year. While the state's governor is mandating a reduction in urban water use, most of the water used in California is for agriculture. But both city dwellers and farmers are feeling the impact of the drought. Some experts say the state’s water system was not created to handle long periods of drought. Elizabeth Lee reports from Ventura County, an agricultural region just northwest of Los Angeles.
Video

Video How to Clone a Mammoth: The Science of De-Extinction

An international team of scientists has sequenced the complete genome of the woolly mammoth. Led by the Swedish Museum of Natural History in Stockholm, the work opens the door to recreate the huge herbivore, which last roamed the Earth 4,000 years ago. VOA’s Rosanne Skirble considers the science of de-extinction and its place on the planet
Video

Video Blind Boy Defines His Life with Music

Cole Moran was born blind. He also has cognitive delays and other birth defects. He has to learn everything by ear. Nevertheless, the 12-year-old has had an insatiable love for music since he was born. VOA’s June Soh introduces us to the young phenomenal harmonica player.

VOA Blogs

More Americas News

Pope Beatifies Murdered Salvadoran Archbishop

Hundreds of thousands of worshippers converge on Salvadoran capital to witness papal declaration for late Oscar Romero - now one step from Roman Catholic sainthood
More

Scores Killed in Western Mexico Gunfight

Officials say almost every person killed in Michoacan state shootout was a suspected gang member
More

Latest US-Cuban Talks Ends in Washington

Both sides cite progress on restoring diplomatic ties, but no final agreement reached
More

Tutu Lends Support to Age Campaign

Help Age International has launched Action 2015 campaign
More

Colombia Kills 18 FARC Rebels

The bombing raid took place in the Cauca region of western Colombia
More

Lawmakers Question Normalization Effort With Cuba

On eve of next round of US-Cuba talks, Senator Bob Menendez calls engagement 'one-sided'
More