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CHILE: Fitch Downgrades Credit Rating To 'A,' Stable Outlook

Fitch Ratings downgraded Chile’s credit rating to ‘A,’ from ‘A+,’ but raised the country’s outlook to ‘stable,’ from ‘negative,’ saying that the extended low economic growth period and lower copper prices should hurt public accounts.

“Chile’s period of weak economic growth following the mining supercycle is lasting longer than expected,” the credit rating agency said.

The forecast is that the Gross Domestic Product (GDP) will grow 1.4% in 2017, after rising 1.6% in 2016, in contrast to previous forecasts of moderate recovery.

Fitch argued that the main reason for the weakness of the economy in 2017 was the strike at the Escondida copper mine in the first quarter. However, the mining production also stagnated elsewhere, both by temporary and structural factors. Also, growth in non-mining activity slowed down, and investments remained weak, despite resilient consumption.

According to Fitch, Chile’s GDP should grow by 2.4% in 2018 and 2.8% in 2019, amid better external conditions and after November’s elections.

“The change of government in 2018 represents an opportunity to improve confidence and growth prospects,” the agency said.

However, the next administration’s potential to contribute to the short-term economy seems limited, “given tighter fiscal constraints and the long time horizon for improvement of Chile’s main growth bottlenecks.”

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