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UPDATE 2-Chile will grow over 6 pct in 2011, finmin says
June 28, 2011 / 9:21 PM / in 6 years

UPDATE 2-Chile will grow over 6 pct in 2011, finmin says

* Chile can withstand U.S., euro zone slowdown

* Emerging markets growth is key, minister says

* Bond issue may come in 2011 or 2012-2013 (Updates, adds more quotes, background)

By Sujata Rao

LONDON, June 28 (Reuters) - Chile’s economy will grow by more than 6 percent this year, with booming domestic demand and growth in the developing world compensating for weakness in Europe and the United States, Finance Minister Felipe Larrain said on Tuesday.

“Chile is growing at a very solid pace,” Larrain told a conference. “The economy is growing at 6.5-7 percent in the first half and our estimate is it will grow over 6 percent in 2011.”

He said part of the growth was based on “consumption, which is growing at over 10 percent. The construction sector is also becoming the driver of growth.”

Chile grew at 5.2 percent last year, recovering well from a 2009 earthquake, but growth has accelerated further this year, with 9.8 percent recorded in the first quarter. The central bank recently raised growth estimates for 2011 to between 6 and 7 percent.

Larrain said Chile had tried in recent years to diversify exports, especially to other Latin American states, which now are a bigger export destination than the euro zone. The world’s No. 1 copper exporter is also heavily reliant on Chinese and Asian growth, with China the biggest buyer of its copper.

That means Chile is well placed to withstand slower growth in the European Union and the United States, Larrain said, but he warned a disorderly default by Greece, leading to contagion into the emerging world, could be a problem.

”If Greece has an orderly (debt) workout the situation will be low growth in Europe for a while. Low growth ... will not be a problem for a country like us because of the way we have developed our economy. The European Union is 18 percent of our exports.

“We can cope with low growth in Europe and we can cope with low growth in the United States based on (the premise that) emerging markets growth keeps moving.”

The flipside would be default and contagion from Greece that would hurt emerging markets growth, Larrain said.

“So one situation would be OK for us, the other situation would be a bit more complicated.”

World financial and commodity markets have been on edge in recent days as investors wait to see if the Greek Parliament approves key fiscal austerity measures required to secure international aid and stave off default.

There are also fears the world economy is headed for another soft patch with recent data from the United States as well as China -- the world’s two biggest economies -- appearing to back that up.

That would be bad news for world copper prices.

“Yes we are highly dependent on copper. Copper is 58 percent of exports, and natural resources are the base of our exports. That is one of the challenges we have,” Larrain admitted.

The environment has soured the market for global bond issuance, and Larrain indicated Chile’s bond issuance plans could also be delayed. Santiago had said earlier this year it planned to place up to $1.5 billion this year, probably after September.

It successfully raised $1.5 billion in global capital markets last year via a combination of dollar bonds and peso-denominated international debt.

“We are seriously considering going back to the market,” he said, noting Chile had registered with the U.S. Securities and Exchange Commission for $3 billion worth of bonds and only half of that had been placed.

“So we will go back with a $1.5 billion issue. This could be in 2011, 2012, 2013.” (Reporting by Sujata Rao; Editing by Susan Fenton and Kenneth Barry)

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