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Net-FDI funded CAD.
2024/03/18 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

The current account deficit in 4Q23 came in above market expectations at USD 3.7 billion (BBG: USD -2.7 billion; Itaú: USD -2.9 billion). Current account deficits in the first three quarters of 2023 were revised up (by USD 2.1 billion; mainly due to larger services and incomes deficits). Overall, a 3.6% of GDP current account deficit was registered in 2023, narrowing significantly from the 8.7% in 2022, but above our expectation of closer to 3%. During the year, the trade balance of goods was broadly stable from 2022, while the services deficit narrowed notably. The income deficit continued to tick up as copper prices remained elevated. The financing breakdown of the CAD continued to improve with the bulk derived from long-term FDI. External debt as a share of GDP was broadly stable. The swift improvement in Chile’s balance of payments, driven by the normalization of domestic demand, reduces the CLP’s vulnerability to external shocks in the context of narrowing interest rate differentials with the U.S.  


A large trade surplus for goods continued in 2023 as domestic demand softened. Exports of goods fell 4.1% last year (+4.2% in 2022), dragged by lower prices, but goods imports dropped by a larger 16.4% (+12.5% in 2022), pulled down by volumes particularly of consumer and intermediate items. Exports of services were driven by travel, while lower shipping fees eased service imports. The income deficit continued to tick up to USD 17 billion (USD 14.2 billion in 2022), lifted by the return of FDI in Chile, as copper prices remained elevated. On the other hand, Chilean investments abroad fell from the previous year.


Favorable FDI dynamics consolidate a more sustainable financing mix. Net FDI in 2023 exceeded the CAD at 130%, the highest financing mix since 2014, and up sharply from the 19% in 2022. The direct investment component reached a USD 15.5 billion net inflow in 2023 (USD 5.0 billion in 2022), given capital injections and re-investment of profits. Portfolio investment registered a large net outflow of USD 1.8 billion last year (USD 5.3 billion inflow in 2022), led by pension fund investments abroad. The stock of external debt reached 75.6% of GDP in December (74.9% a year earlier), lifted by greater public and private company debt.


We except the gradual recovery of domestic demand to support a mild widening of the CAD this year to around 4%.