After avoiding the technical recession with a positive Imacec of 2.4% in June, and with the expectation that some of the variables that dragged growth during the first five months of the year —mining, fishing, among others— will improve, it is expected that 2026 will close with a GDP expansion close to or slightly below 2%. That is, growth in line with potential, which raises again the question of what slope activity will take in the coming months and years.
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A question that is not new. Twelve years ago, when in 2014 the country began to show signs of weakness that led it to close with a poor GDP expansion of 1.9%, the Treasury authorities at the time answered that question by stating that “we believe that in 2014 we will go from less to more; that 2015 will be better than 2014 and that in 2015 and 2016 we will be growing at our potential GDP, which is 4.8%.”
The story of what happened from that year —which many point to as the starting point of a prolonged cycle of mediocrity— is well known. Beyond the mirage that led the same government authorities to announce the sighting of ‘green shoots’, since then what has really happened is that Chile’s potential GDP has been going downhill, moving from ranges of 4% to 5% in those years to current levels around 2%.
Today, apart from anticipating a better second half, supported by a rebound in the mining sector, among other factors, and foreseeing a 2027 that could reach levels of 3%, the question remains of what contribution the entry into force of the National Reconstruction Law will make, which still has to overcome a couple of hurdles within the series of obstacles put in the way by an opposition entrenched in the discourse that the changes favor the rich and threaten acquired rights.
Although the effects of the changes contemplated in the reform regarding tax competitiveness, certainty for investments, employment incentives, and facilitation of permits go in the direction of producing a boost in growth, there are two considerations that should not be overlooked.
The first is that the scope of the measures contained in the so-called miscellaneous law will not be short-term, both because several of them are progressive and because, according to comparative evidence, these structural changes take two or three years to begin generating effects of the same order on growth potential.
And, secondly, it is essential to be transparent that, although this reform will very likely significantly break the curve of recent years, that should be seen as a first step. Because to raise Chile’s potential growth it is not enough to increase investment. Besides investing more, it will be necessary to recover productivity, increase labor participation, strengthen human capital, and generate regulatory and institutional conditions that favor innovation.
But that is not all. There is also a third consideration, namely, that it will be important to assume that, during the process that will begin once the law is approved, it will be necessary to incur a cost that will be expressed in greater stress on fiscal accounts. That impact has already been warned and, this week, the international risk rating agency Fitch has endorsed it by indicating that this price is expected as a result of the “direct negative impact on fiscal revenues.”
Along the same lines, Fitch added that, in general, they have a “somewhat aseptic view of reforms that pay for themselves, with their effects on investment, growth, and employment,” adding immediately that “we do not see that it will imply a deterioration in the fiscal position of much relevance.”
This exercise of honesty regarding the reform is relevant, so that the foreseeable better specific data that may be seen in the coming months do not cloud the long-term vision, in that what is beginning is a path that will take years and that, along the way, it will be necessary to correct more situations and inflexibilities that hinder productivity and the labor market. That is, what opens is a period not free of complexities and that will entail costs, against which it will be essential to remember that ‘there are no free lunches,’ as apparently was believed in Chile when taxes were raised to high levels within the OECD, in the belief that growth and investment would not be affected.
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