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Chile cuts growth forecast for second time this year
First Published Jul 14 2014 10:19 am • Last Updated Jul 14 2014 10:19 am

Santiago — Chile cut its 2014 economic growth forecast for the second time this year, citing a steep slowdown in domestic demand.

The economy of the world´s biggest copper producer will expand 3.2 percent in 2014, down from a previous estimate of 3.4 percent, Budget Director Sergio Granados said in a speech to Congress Monday. Domestic demand will expand 1.8 percent, down from the 5.4 percent forecast in this year’s budget.

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The government cut its forecast after manufacturing stalled, retail sales growth eased and investment tumbled in the first part of the year. The slowdown has been worse than the government and central bank expected, with policymakers cutting their own forecasts three times and reducing the benchmark interest rate rates four times in the past year.

"The cut is very reasonable given that growth expectations are falling," Ruben Catalan, an economist at Banco de Credito e Inversiones in Santiago, said by phone. "We have entered a downward cycle and we are seeing factors that could delay a recovery, with employment likely to rise in coming months."

Fixed capital formation fell 5 percent in the first quarter from the year earlier, after tumbling 12.3 percent in the previous three months, as an investment boom in the mining industry came to an end.

Policymakers said in their last quarterly monetary policy report that gross domestic product will expand 2.5 percent to 3.5 percent this year.

The economy expanded 2.6 percent in the first quarter from a year earlier, the slowest pace since 2010 and compared with 2.7 percent in the previous three months and 5 percent in the third quarter.

Economists expect GDP to grow 2.9 percent in 2014, according to a monthly survey released by the central bank last week. They forecast policymakers will cut the key rate by a quarter point to 3.75 percent Tuesday and to 3.5 percent in the next five months.

The central bank has cut the benchmark interest rate four times since October as growth slows. In their last meeting in June 12, policy makers were split in their decision to leave rates unchanged for the first time since April 2008. The newest director, Pablo Garcia, voted for a quarter-point reduction, citing the need for further economic stimulus.

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