Commodities, renewable energy and green hydrogen will power exports

Economists at Santander Chile analyse some of the key growth areas in Latin America’s fifth largest economy. 

Chile’s economy bounced back quickly from the Covid pandemic thanks to a big fiscal and monetary policy push. There was a threat of overheating but robust management by policymakers led to a softer landing than expected in 2023. 

This hard work has created stability at the start of 2024. Inflation is expected to reach the 3% target, the current account deficit should shrink and the economy will grow by around 2%. 

Several international organizations and rating agencies have pointed to Chile’s institutional strength, particularly the autonomy of the central bank and the added credibility this affords, as key to this macroeconomic stability. 

Chile’s main export industry is mining, not least because it sits on vast copper and lithium reserves – the critical minerals the world needs to develop electric vehicles and other green technologies.

It also has enormous potential in renewable energy and green hydrogen production, which makes the country attractive to international investors.

Global demand for these resources provides greater incentive to invest in these sectors. While this directly benefits exporters and domestic economic growth, the government can also bank on higher tax revenues.

Technological innovation and a growing digital economy will be key drivers of long-term growth for Chile. 

Digital connectivity is being improved with the roll-out of fibre optic networks that deliver fast broadband and boost productivity. Chile’s growing reputation as a technology hub will be enhanced further when the first subsea fibre optic cable between South America and Asia-Pacific goes live in the next two years.

While these developments offer plenty of opportunity over the next few years, the country has to also resolve significant structural challenges. Priority needs to be given to productivity and investment, while reducing regulatory barriers would strengthen competition and reduce research costs.