June 22, 2020 / 11:52 PM / a month ago

UPDATE 1-Chile says economy to shrink far more than originally predicted

(Adds historical context, quote from budget official)

SANTIAGO, June 22 (Reuters) - Chile’s Budget Office said on Monday the economy would shrink 6.5% in 2020, a far deeper contraction than predicted just two months ago as the coronavirus pandemic pummels the world´s top copper producer.

Budget officials estimated in April that gross domestic product (GDP) would contract by 2%. At the time, President Sebastian Pinera had talked of a “gradual reopening” of the economy.

Since then, the virus has exploded in Chile, prompting health officials to lock down the capital Santiago, the country’s economic engine, and force nearly 10 million of its citizens into lockdown.

The budget office said in its second-quarter public finance report on Monday it saw inflation at 2.8%, down from its April prediction of 3.3%. Domestic demand, meanwhile, is expected to tumble 9.8%, versus an estimated drop of 3.3% previously.

The report forecast the 2020 copper price, a critical driver of the economy, at $2.48 per pound, up from a previous estimate of $2.36 in April.

High levels of public spending to combat the coronavirus crisis will widen the fiscal deficit to 9.6% of GDP this year, the highest since 1973 when General Augusto Pinochet seized power in a military coup. Officials had predicted a deficit of 8% in April.

“This speaks to the magnitude and the impact that this health crisis is having,” budget office director Matias Acevedo said.

Chile´s central bank also warned last week that the South American nation´s economy would contract between 5.5% and 7.5% in 2020, taking it to the lowest levels since the Latin American debt crisis of the 1980s.

Chile has confirmed nearly 247,000 cases of coronavirus and 4,502 deaths due to COVID-19.

Reporting by Dave Sherwood and Natalia Ramos in Santiago Editing by Matthew Lewis and Kim Coghill

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