Chile Economic Euphoria Crashes to Earth as President Kast Faces 1% Growth

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Eterovic is skeptical that a rebound is around the corner in Chile. He expects activity figures to remain weak over the next six to seven months, with a more pronounced recovery only taking hold in the second half of 2027. 

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A top concern is the labor market. “Companies are not hiring. You are getting a really poor composition of employment with a high degree of informality. We are not creating private jobs that contribute to social security,” he said.

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Kast and his team have repeatedly blamed the current economic malaise on the previous president, Gabriel Boric. But their argument is failing to resonate.

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Inflation, unemployment and weak growth represent the biggest drivers behind voter disapproval of Kast’s government, which rose to 59% compared to 34% when he came into office in March, according to a Cadem poll published Thursday. Those woes even outrank concerns over the hot-button issues of public security and immigration, that survey showed.

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“The first half of the year was a complete surprise, and that ended up completely diminishing expectations for the whole year,” said Samuel Carrasco, chief Chile economist for Credicorp Capital in Santiago. 

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Recovery Bet

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Still, Carrasco said it’s only a matter of time before the outlook brightens, especially for investment. Indeed, between April and June projects worth over $16 billion secured environmental regulatory approval. It was the largest amount ever cleared in a single quarter, the government said. 

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The activity downturn is adding urgency to Kast’s economic omnibus bill, which passed the lower house of Congress by a wide margin in May and got preliminary Senate approval in June. With the government stepping up pressure for legislative action, senators are expected to hold article-by-article votes on Wednesday, putting it on the cusp of becoming law.

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The bill seeks to drive growth by cutting corporate levies to 23% from 27%, implementing employment subsidies, streamlining the permitting process and establishing tax rate guarantees for big investments, among other proposals.

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In addition to that economic legislation, “the government will push forward — with inter-ministerial coordination — new measures to boost public and private investment and employment, including a capital markets reform, the details of which will be communicated in due course,” the Finance Ministry said in response to a request for comment. “The fundamentals of the Chilean economy remain solid, as well as capable of responding to challenges and regaining greater dynamism.”

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Sales tax collection in June showed the broader economy is picking up, Finance Minister Jorge Quiroz told reporters on July 6, adding that activity will grow in following months. While in March the government raised fuel prices by the most since at least 1980 due to the Middle East war, those costs have come back down, fanning hopes of a recovery in consumer confidence.

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The benchmark IPSA stock index reached a record high the month after Kast was elected, at the same time that the cost of insuring against a default in Chile fell to a six-year low. The extra yield investors demand to hold Chilean debt over its US counterpart fell to a two-decade low in May.

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On Friday, Kast moved again to show he has not been caught flat-footed by announcing a plan to spend 50 billion pesos ($53.8 million) on measures like subsidies to create 50,000 jobs by October. Additional policies will be announced in coming weeks, dual Economy and Mining Minister Daniel Mas told reporters.

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The risk is that Kast gets labeled as a leader who over-promised and under-delivered to an electorate anxious for results. He has already backed off his goal of 4% GDP growth at the end of his term in 2030, and economic headwinds could further damage Chile’s chances, limiting the boost to hiring, spending and investment.

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As he unveiled job creation plans on Friday, Kast struck a solemn tone. “We have a serious problem that affects us as a nation, and the idea is for us to work together.”

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—With assistance from Philip Sanders.

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