SANTIAGO (Reuters) -Chile's gross domestic product fell 0.6% in the second quarter of 2024 compared with the previous three-month period, data released by the country's central bank showed on Monday, in line with market expectations.
The figure is likely to open room for the central bank to deliver more interest rate cuts until the end of the year, economists say, after the local monetary authority last month kept its benchmark rate on hold following eight cuts in a row.
According to the bank, the quarterly GDP drop was a result of weaker activity in mining, services and manufacturing in the world's largest copper producer, where mining GDP fell 1.0% on a sequential basis.
The result marked a steep deceleration from the revised 2.1% quarter-on-quarter growth reported in the first quarter, which also set a strong comparison base for the April-June period.
Chile's economy has been regaining ground after facing a sharp economic downturn in 2023, which followed a rapid post-pandemic recovery that generated inflationary pressures and led the central bank to hike rates.
As inflation receded, the bank lowered borrowing costs by a total 550 basis points since July 2023 to the current 5.75%.
"The fall in Chilean GDP in the second quarter is mainly payback for a strong first quarter, and we expect a return to positive growth in the third quarter," Capital Economics' emerging markets economist Kimberley Sperrfechter said.
Still, "the weakness shown in the second quarter means that there's scope for the central bank to deliver two more 25-basis-point interest rate cuts, to 5.25% over the remainder of this year," she added.
On an annual basis, the Chilean economy expanded 1.6% in the second quarter, the central bank said, below the 1.8% growth expected in a Reuters poll of economists.
Annual GDP was boosted by mining, utility services, commerce and transportation, according to the monetary authority. Mining GDP advanced 5.5% on an annual basis, the bank said.
"The second quarter figures show a rise in investment but also a decline in consumption," Scotiabank economist Jorge Selaive said. "This should support lower inflationary pressures and give monetary policy some additional room."
The Chilean government expects economic growth to stand at 2.6% in 2024, according to figures released last month.