By Aislinn Laing and Fabian Cambero
SANTIAGO (Reuters) – Chile’s Central Bank on Wednesday predicted the economy of the worlds top copper producer will contract between -1.5% and -2.5% in 2020, faulting the coronavirus pandemic for a “drastic deterioration” in its outlook.
The contraction represents a sharp drop from a previous prediction for economic growth of between 0.5% and 1.5%. That figure already represented a downgrade from formerly buoyant forecasts after riots over inequality hit Chile and ravaged what was once Latin Americas most stable economy.
Now, coronavirus has once again upended predictions, the bank said in its quarterly economic report.
“The evolution of this health emergency leads us to project that activity began to contract in the second half of March, reducing growth in the first quarter and a starting point for a contraction in the second quarter,” the bank said.
The banks report put the global copper price at $2.15 per pound, a drastic reduction over previous estimates as worldwide demand, and prices, for copper have plunged amid the outbreak.
Chile, the worlds top producer of the red metal, depends on copper exports for as much as 15% of its gross domestic product.
The bank report put 2020 inflation at 3%, compared with 3.6% previously, and said domestic demand would drop 5.8%.
Following late 2019 protests, inflation had begun to creep upward as the peso depreciated to historic lows. But the bank has said that a plummeting oil price amid the global coronavirus pandemic would counterbalance the fall of the local currency, reducing inflationary pressures.
Those circumstances prompted the bank to slash the key interest rate late on Tuesday to an historic low of 0.5%.
“Monetary policy will be highly expansionary for an extensive period of time,” the bank said in a statement accompanying its Tuesday decision.
The bank expressed hopes of a recovery beginning in the third quarter.
The first case of coronavirus landed in Chile at the start of March and there have now been more than 2,000 confirmed cases and 12 deaths in the country. The government has shuttered schools and shops and announced curfews and quarantines around the country.
(Reporting by Aislinn Laing and Fabian Cambero; writing by Dave Sherwood, Editing by Steve Orlofsky and Nick Zieminski)
