The International Monetary Fund (IMF), in its recently released 2026 Article IV Consultation report, has downgraded Chile’s economic growth forecast for 2026 to 1.8%, down from its previous projection of 2.2%. At the same time, the IMF projects a rebound to 2.6% in 2027. This marks the second downward revision of Chile’s growth outlook by the IMF this year.

Slowing Growth Amid Multiple Headwinds

In its report, the IMF noted that while Chile’s economy remains resilient, growth momentum is weakening due to a confluence of factors. Data shows that Chile’s GDP grew by 2.5% in 2025, driven largely by robust non‑mining domestic demand. However, after entering 2026, conflicts in the Middle East pushed up energy prices, fueling inflation. Although inflation had fallen back within the central bank’s target range in early 2026, it subsequently overshot the target again due to rising energy costs.

At the same time, domestic economic indicators are also concerning. The latest Economic Expectations Survey from Chile’s central bank shows that experts project the economy will grow by only 1.3% in 2026, with an unemployment rate of 9.4% and annual inflation still at 4.3%, above the central bank’s 3% target. The economic activity index (Imacec) has now declined for five consecutive months.

Copper Prices Offer Support, with a Rebound Expected in 2027

Despite the dimmer short‑term outlook, the IMF maintains a relatively optimistic view of Chile’s medium‑term economic trajectory. The report projects that, supported by factors such as rising copper prices, Chile’s economic growth will rebound to 2.6% in 2027. As the world’s largest copper producer, Chile’s economy is closely tied to copper price trends, and sustained strength in international copper prices could provide important momentum for economic recovery.

The IMF also warned that if high oil prices persist longer than anticipated, they could further dampen growth and fuel inflation, and the central bank should stand ready to tighten monetary policy as needed. The report added that external risks remain tilted to the downside, with geopolitical conflicts and global supply chain disruptions posing major threats.

Fiscal Consolidation Challenges Remain; Structural Reforms Called For

On the fiscal front, the IMF noted that Chile’s fiscal deficit persists, mainly due to lower‑than‑expected fiscal revenues, although public debt levels remain moderate. To achieve the government’s stated goal of reaching fiscal structural balance by 2030 and keeping the debt‑to‑GDP ratio below 45%, the IMF said “additional fiscal efforts” are still required.

The IMF Executive Board recommended that the Chilean authorities continue to rebuild fiscal and external buffers, including by pressing ahead with reserve accumulation plans, while advancing structural reforms to enhance long‑term growth potential. The report also suggested that the government prioritise and sequence reform measures prudently under the national reconstruction plan, and carefully assess the fiscal costs and growth impacts of tax and other reforms.

Government Response: On the Right Track, Confidence Unshaken

In response to the IMF’s downgrade, the Chilean government sought to play down concerns. Arturo Squella, President of the ruling Republican Party and a senator, said, “When an international organisation emphasises that Chile is making the right decisions, it shows that we are on the right track.” The government insisted that Chile’s economic fundamentals are sound and that there is no risk of recession.

However, market analysts pointed out that, against the backdrop of a slowing global economy, inflationary pressures, and a weak domestic job market, the performance of Chile’s economy in the second half of the year still faces considerable uncertainty. The upcoming release of the June economic activity monthly index will be a key indicator for judging whether the economy can regain growth momentum before the third quarter.