Downgrades highlight Chile's weak economic outlook

Significance

On August 11, Fitch Ratings downgraded Chile’s long-term foreign currency rating to ‘A’ from ‘A+’, its level since 2011. This followed a downgrade by Standard and Poor’s to 'A+' from 'AA-' in mid-July. Both agencies cited weak growth, lower copper prices and their fiscal impact.

Impacts

• Growth remains weak this year despite Chile’s improved terms of trade and higher growth in its trading partners.
• It is the rate of increase of government borrowing, rather than its level, that is a concern.
• Whatever its colour, the next government will have little room to increase spending without putting additional pressure on borrowing.