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

Changing Under Pressure, IS ‘Potent’ as Ever

US intel officials describe Ramadi's fall as concerning, but say it isn't emblematic of larger effort to degrade IS capabilities More

Nigeria Fuel Shortage Shows Fragility of Africa’s Oil Giant

Although it is the largest oil producer in Africa, country has nearly ran out of fuel it needs to power its generators, cars and airplanes over the past week More

Arrested Football Officials Come Mainly From the Americas

US Justice Department alleges defendants participated in 24-year scheme to enrich themselves through corruption of international soccer More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
3D Printer Makes Replica of Iconic Sports Cari
|| 0:00:00
...    
🔇
X
George Putic
May 27, 2015 9:31 PM
Cars with parts made by 3D printers are already on the road, but engineers are still learning about this new technology. While testing the possibility of printing an entire car, researchers at the U.S. Department of Energy recently created an electric-powered replica of an iconic sports roadster. VOA’s George Putic has more.
Video

Video 3D Printer Makes Replica of Iconic Sports Car

Cars with parts made by 3D printers are already on the road, but engineers are still learning about this new technology. While testing the possibility of printing an entire car, researchers at the U.S. Department of Energy recently created an electric-powered replica of an iconic sports roadster. VOA’s George Putic has more.
Video

Video US Voters Seek Answers From Presidential Candidates on IS Gains

The growth of the Islamic State militant group in Iraq and Syria comes as the 2016 U.S. presidential campaign kicks off in the Midwest state of Iowa.   As VOA’s Kane Farabaugh reports, voters want to know how the candidates would handle recent militant gains in the Middle East.
Video

Video A Small Oasis on Kabul's Outskirts Provides Relief From Security Tensions

When people in Kabul want to get away from the city and relax, many choose Qargha Lake, a small resort on the outskirts of Kabul. Ayesha Tanzeem visited and talked with people about the precious oasis.
Video

Video Film Festival Looks at Indigenous Peoples, Culture Conflict

A recent Los Angeles film festival highlighted the plight of people caught between two cultures. Mike O'Sullivan has more on the the Garifuna International Film Festival, a Los Angeles forum created by a woman from Central America who wants the world to know more about her culture.
Video

Video Kenyans Lament Losing Sons to al-Shabab

There is agony, fear and lost hope in the Kenyan town of Isiolo, a key target of a new al-Shabab recruitment drive. VOA's Mohammed Yusuf visits Isiolo to speak with families and at least one man who says he was a recruiter.
Video

Video Scientists Say Plankton More Important Than Previously Thought

Tiny ocean creatures called plankton are mostly thought of as food for whales and other large marine animals, but a four-year global study discovered, among other things, that plankton are a major source of oxygen on our planet. VOA’s George Putic reports.
Video

Video US-led Coalition Gives Some Weapons to Iraqi Troops

In a video released Tuesday from the Iraqi Ministry of Defense, Iraqi forces and U.S.-led coalition troops survey a cache of weapons supplied to help Iraq liberate Mosul from Islamic State group. According to a statement provided with the video, the ministry and the U.S.-led coaltion troops have started ''supplying the 16th army division with medium and light weapons in preparation to liberate Mosul and nearby areas from Da'esh (Arabic acronym for Islamic State group).''
Video

Video Amnesty International: 'Overwhelming Evidence' of War Crimes in Ukraine

Human rights group Amnesty International says there is overwhelming evidence of ongoing war crimes in Ukraine, despite a tentative cease-fire with pro-Russian rebels. Researchers interviewed more than 30 prisoners from both sides of the conflict and all but one said they were tortured. Henry Ridgwell reports for VOA from London.
Video

Video Washington Parade Honors Those Killed Serving in US Military

Every year, on the last Monday in the month of May, millions of Americans honor the memories of those killed while serving in the armed forces. Memorial Day is a tradition that dates back to the 19th Century. While many people celebrate the federal holiday with a barbecue and a day off from work, for those who’ve served in the military, it’s a special day to remember those who made the ultimate sacrifice. Arash Arabasadi reports for VOA from Washington.
Video

Video Kenya’s Capital Sees Rise in Shisha Parlors

In Kenya, the smoking of shisha, a type of flavored tobacco, is the latest craze. Patrons are flocking to shisha parlors to smoke and socialize. But the practice can be addictive and harmful, though many dabblers may not realize the dangers, according to a new review. Lenny Ruvaga has more on the story for VOA from Nairobi, Kenya.
Video

Video Rolling Thunder Run Reveals Changed Attitudes Towards Vietnam War

For many US war veterans, the Memorial Day holiday is an opportunity to look back at a divisive conflict in the nation’s history and to remember those who did not make it home.
Video

Video Female American Soldiers: Healing Through Filmmaking

According to the United States Defense Department, there are more than 200-thousand women serving in the U.S. Armed Forces.  Like their male counterparts, females have experiences that can be very traumatic.  VOA's Bernard Shusman tells us about a program that is helping some American women in the military heal through filmmaking.

VOA Blogs

More Americas News

Latin American Soccer Fans Cheer FIFA Corruption Sweep

Latin American fans have long booed officials assumed to be on the take, amid deep public disgust at graft in the game
More

FARC Negotiator Killed in Colombian Bombing Raid

Jairo Martinez one of 27 rebels killed last Thursday in Cauca province, in a raid that led FARC to end a unilateral cease-fire
More

Multimedia World Reacts to FIFA Indictments

While some applaud corruption charges, Russia calls on 'Washington to stop attempts to make justice far beyond its borders'
More

UN: World Hunger Declines, But More Effort Needed

Report finds large progress in some parts of Africa, but notes that sub-Saharan Africa still has the highest prevalence of undernourishment in the world
More

Maduro Rules Out Dollarizing Venezuela's Economy

Businesses struggle to obtain dollars through current currency system, leaving them unable to import raw materials or replacement parts
More

Arrested Football Officials Come Mainly From the Americas

US Justice Department alleges defendants participated in 24-year scheme to enrich themselves through corruption of international soccer
More