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Growth revised down as fiscal impulse turns positive.

Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra


Official growth forecast for 2023 was revised down, yet still above consensus. In its updated quarterly macro-fiscal forecasts, the MoF revised its 2023 growth projection down from -0.5% to -0.7%, due to inflation, tight global financial conditions and a worse global backdrop (which stands in contrast to a recent improvement of market expectations for global growth). At -0.7%, the MoF’s growth forecast is above the Central Bank’s range forecast for this year (-0.75%, -1.75%), our -0.9% call, and market consensus at -1.5%. Still, the MoF projects sequential improvements in activity starting in the second quarter of the year. Inflation was revised up to a yearly average of 7.3%, from 6.3%, and is expected to converge back to the 3% target during the first semester of 2024. The economy’s terms-of-trade are expected to improve, as the copper price projection increased to USD3.74, from USD3.62, while that for oil declined to USD77 per barrel, from USD84.

Real revenues expected to fall by 12.5%. Revenues are projected to reach 22.6% of GDP in 2023, falling by 12.5% YoY in real terms with respect to 2022. Relative to the previous forecast, 2023 real revenues increased by 1.2%, driven by an increase in lithium-related revenue and mining revenue that outweighs a larger decline in revenue associated to economic growth. Still, relative to 2022, revenue from Codelco is expected to decline by 39.6% in real terms, driven by lower sale prices, production, and changes in the dividend policy, while lithium-related revenue is expected to fall by 41.7% in real terms.

Real expenditures will likely increase by less than previously anticipated. Real expenditures are projected to reach 25% of GDP, increasing by 1.2% from 2022, below the 4.2% forecasted in the previous report, primarily reflecting base effects from greater spending towards the end of 2022, as well as lower interest payments. Relative to the previous forecast, real expenditures in 2023 fall slightly by 0.11%.

Falling revenues and rising expenditures swing the balance back to a deficit. Following the outperformance in 2022 with a fiscal surplus of 1.1%, the balance is expected to swing back to deficit in 2023. Higher revenue forecasts lead the MoF to project a lower nominal deficit in 2023, at 2.4% of GDP, down from the 2.7% projected in the previous report.

The fiscal impulse turns positive. In 2022, the structural balance was estimated at 0.2% of GDP, turning positive after the record structural deficit in 2021 of 10.8%; the massive fiscal adjustment in 2022 was a key factor in the economy’s macro re-balancing. However, the fiscal impulse, as measured by the annual change in the structural balance, is projected to turn positive this year, reaching 2.3% of GDP, as the structural balance ended is forecasted to reach a deficit of 2.1% in 2023.

Medium-term growth forecasts practically unchanged. The medium-term growth path for the economy was revised down slightly for 2024-2025 to 2.9% in each year from 3.2% and 3.1% respectively, with the economy then expanding by 2.8% and 2.4% during 2026 and 2027 (both unchanged from previous forecast). The fiscal consolidation path set by decree has the structural deficit converging from 2.2% by the end of 2024 to a deficit of 0.3% by 2026.

Gross public debt projected to peak at 41.7% of GDP, above the previous forecast. Gross public debt is estimated to rise from 37.3% by the end of 2022, to 38.7% by the end of 2023 (unchanged from previous report), peaking at 41.7% of GDP by 2025 then falling slightly to 40.4% by the end of 2027.

In all, the economic downturn will stress fiscal dynamics in 2023. While the fiscal outperformance in 2022 was positive on several fronts, it was supported by a massive expenditure contraction and positive revenue surprises, which, as incorporated in the MoF’s projections, are both expected to revert. The 1.2% real expenditure increase is likely biased to the upside, as pressure for greater spending should come from Congress.

Andrés Pérez M.
Vittorio Peretti
Ignacio Martinez Labra