Chilean consumption boosts growth.

On July 19, 2007, the International Monetary Fund (IMF) released the results of its most recent consultation with the Chilean government. The posting on its website said, "The Chilean economy is enjoying a broad-based upswing, fueled by a strong global environment and buoyant domestic demand."

A quick sketch of demand reveals the fact that private consumption is growing at a faster rate than overall demand. Overall consumption grew 7.5 percent in 2005 and 6.6 percent in 2006 (the most recent statistics available from the IMF.) Whereas private consumption grew 7.9 percent in 2005 and 7.1 percent in 2006.

In its separate April 2007 estimates, the IMF said that Chilean GDP grew 5.7 percent in 2005 and 4.0 percent in 2006. For 2007, the IMF forecasts that GDP will grow 5.2 percent, and for 2008 GDP will grow slightly less at 5.1 percent.

"Buoyant credit growth and strengthening labor market conditions continue to boost consumer spending, solid corporate profits and favorable financial conditions have contributed to higher investment, and exports are rising with strong external demand." Chile's job situation continues to improve. In 2004, the unemployment rate crept into double digits at 10.0 percent. The unemployment rate fell significantly in 2005 to 9.3 percent. And by 2006, unemployment was down to 7.9 percent.

Consumers are benefiting from the government's skillful management of inflation. The rate has risen recently, says the IMF, but it remains within the central bank's target range of 3.0 percent. In spite of the comfort the central bank feels with the country's inflationary pressures, the central bank did raise a key interest rate on July 12, 2007. In addition, the central bank let it be known that "it would likely be necessary to further reduce monetary stimulus in the coming months."

Chile continues to benefit from its favorable export position. The worldwide demand has kept copper prices high--copper is Chile's most lucrative export--and demand from China continues to be strong.

Chile's reform agenda draws high marks from the IMF particularly in regard to pensions. Focus on education and job skills will improve Chile's human capital.

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