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Chile's Economy Too Dependent On Mining, Copper - Study
Jul 8,2010 08:56CST
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SANTIAGO, Jul 07, 2010 (Dow Jones Commodities News Select via Comtex) -- Chile's economy needs to depend less on the mining industry, as the country's economic activity increasingly stems from copper mining and three other sectors, said a study by economic research group Equipo Nueva Economia released Wednesday.

The mining, utilities, construction and financial sectors made up more than 40% of Chile's gross domestic product in 2008, up from 33.3% in 2003, according to the report. Chile exports more than a third of the world's copper, and the value of the Chilean peso largely tracks copper prices due to the commodity's importance in the economy.

Mining contributed the largest percentage of the 2008 GDP, with 15.5%. From 2003 to 2008, the mining sector's stake in the GDP grew 262.5% nominally, while the country's GDP increased by 74.5% nominally.

Copper's dominance makes it very difficult for other industrial sectors to compete, said economist and former International Monetary Fund official Luis Eduardo Escobar, one of the group's five members.

"[The economy] is increasingly concentrated in about four sectors: mining, finance, commerce and utilities, and those sectors generate huge profits and so that tends to concentrate production again in those sectors," said Escobar.

As a result of Chile's limited ability to consume those products from these sectors domestically, "what happens is that a large part of the available investment funds go abroad," said Escobar.

The remaining sectors of the Chilean economy that provide most of the country's employment see lower levels of productivity and reduced incomes, he added.

"Over the longer term, that might lead to social tension, because people will see that their living conditions will not improve over time as they would expect or at a reasonably fast pace," said Escobar.

In addition, the group predicted that Chile's GDP would grow by about 5% in 2010 and 6% in 2011, which is largely in line with the central bank's recent projections.

The central bank will likely increase the benchmark interest rate, known locally by the acronym TPM, by 25 basis points to 1.25% at its next monetary policy meeting next week, the group told reporters.

In June the central bank raised the TPM by 50 basis points to 1% from a record low of 0.5%, where it had stood since July 2009.


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