(Bloomberg) -- Chile’s economy posted its first monthly expansion since February as activity struggles to pull out of last year’s stagnation and investors mull how much more interest rates can fall.
The Imacec index, a proxy for gross domestic product, rose 0.3% in June from the prior month, more than the 0.2% median forecast in a Bloomberg survey. However, from the year earlier activity gained just 0.1%, well below the 1.5% estimate from analysts, the central bank reported on Thursday.
Chile’s central bank is weighing economic growth that’s slowed from the start of the year against inflation that’s accelerating above target. Policymakers paused their easing cycle late on Wednesday, while also noting that activity has underperformed. Hours earlier, the government trimmed its GDP growth forecast for this year to 2.6% from 2.7%, citing weakness in sectors other than mining.
Mining gained 1.7% in June from the month prior, while commerce jumped 3.4%, according to the central bank. On the other hand, services fell 0.9%.
June’s month-on-month expansion didn’t prevent activity contracting 0.6% quarter-on-quarter in the April-June period, following a 1.9% gain during the first three months of the year, Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a note.
“The economy likely will start to recover gradually in Q3, driven by the lagged effect of lower interest rates and benign external conditions for Chile’s key exports,” he wrote. “But the upturn will be modest” due to high inflation and subdued confidence.
The central bank held rates at 5.75% on Wednesday and indicated borrowing costs will still fall during its monetary policy horizon at a pace that depends on the economic outlook and inflation. At the same time, they said that during the first half of this year rates accumulated the bulk of the cuts foreseen for 2024.
--With assistance from Giovanna Serafim.
(Updates with analyst quotes starting in fifth paragraph)
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