Prospectiva Económica, Marzo 2024

Abstract

The year 2023 was marked by low economic growth, high inflation, and significant uncertainty both domestically and internationally. For 2024, we anticipate a slightly more encouraging economic outlook, with a mild acceleration in growth, inflation continuing to slowly decrease (though remaining above the target range), and more favorable external conditions. However, we still expect growth in 2024 to remain below its long-term level. Therefore, the performance of productive activity, especially investment, will represent one of the most pressing challenges in economic policy for the current year.

In detail, following the 0.6% growth observed in 2023, we expect the economy to accelerate to 1.5% growth in 2024. This result would be driven by a slight recovery in the industry, commerce, and construction sectors, especially in civil engineering. On the demand side, growth would be bolstered by increased consumer dynamism and the recovery of gross fixed capital formation. On the other hand, the economic slowdown in 2023 is expected to have a lagged effect on the labor market, leading to an increase in the unemployment rate from the 10.2% observed in 2023 to an average of 10.7% in 2024.

Regarding inflation, we expect it to continue decreasing throughout 2024, reaching a total inflation of 5.5% by the end of the year. This reduction would be mainly driven by the services and regulated components, which currently have the highest annual variations and the greatest contribution to total inflation. In turn, due to the observed and expected decreases in inflation, as well as low economic growth, we estimate that the Central Bank will decrease its intervention rate throughout the year, reaching 7.5% in December 2024.

On the external front, we expect the current year to have better international conditions. This would occur in a context of inflation continuing to decline, less contractionary external monetary policy, a correction of the risk premium, and an oil price that would remain at high levels, slightly higher than in 2023. Additionally, we expect an increase in the current account deficit from 2.7% of GDP observed in 2023 to 3.1% of GDP in 2024, in line with the acceleration of economic growth, resulting from the recovery of domestic demand and specifically investment.

Finally, in 2024, the fiscal outlook would deteriorate compared to what was observed in 2023 and previous fiscal years, interrupting the declining paths observed in the Central Government's deficit since 2020. In particular, Fedesarrollo estimates a deficit of 5.5% of GDP in 2024, slightly higher than the 5.3% projected by the Ministry of Finance and Public Credit (MHCP), associated with lower expectations of tax revenues, and incorporating a cut in spending of 0.9% of GDP (equivalent to $15.8 trillion). As a result, we also expect a higher net debt outcome for the Central Government than estimated by the government. Finally, in this scenario, unlike what was observed in 2023, the target for the Structural Net Primary Balance (BPNE) would be met without any margin.