Chile’s domestic demand by key components, Q1 2022 to Q4 2022

Given the tax reform rejection, the government has less fiscal space to overcome consumer spending and investment contractions

Chile will report one of the worst growth performances in LATAM during 2023 (a forecast of -1.0% YOY), and B2C firms should anticipate much lower consumer demand (-2.5% YOY projection). Companies in the durables space, particularly technology, should focus on value-added services, as consumers will be less eager to buy or upgrade electronics. Firms outside the durables sector should continue to concentrate on lower-cost products or services as consumers become increasingly price sensitive, or identify consumer segments unaffected by tax changes to help counter the depressed demand. FrontierView expects lower exchange rate volatility than in 2022 and a slight currency appreciation (from an annual average of 873 CLP:USD in 2022 to 840 CLP:USD in 2023), which could help MNCs to boost demand for imported products. 


  • In Q4 2022, Chile’s GDP contracted 2.3% YOY, and domestic demand plummeted by 7.6%. Consumer spending declined by 4.7% YOY due to lower consumption of durable (-18.1% YOY) and nondurable goods (-7.9% YOY). 
  • Service consumption, representing approximately 45% of total consumer spending, increased by 2.2% YOY in Q4, driven by personal and business services, especially in the hospitality sector. However, services show a clear deceleration after growing 20% YOY in the first two quarters of 2022. 
  • Investment dropped 1.7% YOY in Q4, and the construction sector registered a particularly weak performance in 2022 (0.6% YOY) amid rising interest rates.

Our View

We expect Chile will enter a recession in Q1 2023, as high inflation and unemployment continue to harm consumption and investment. Particularly, inflation (11.9% in the last 12 months) remains well above the central bank’s upper-bound target (4%), real wages accumulated 16 months of negative YOY growth rates, and unemployment is above pre-pandemic levels (8.0% in January 2023). Moreover, uncertainty surrounding public revenue caused by the rejection of the tax reform will limit the government’s ability to increase spending, a move that would have impacted nondurable goods’ consumption and boosted public investment. On a positive note, the second constitutional process is expected to be more moderate than the first draft, leading to strongly positive market expectations.

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