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Chile government cuts 2016 growth forecast to 1.75% on rising unemployment, copper price slump

A five-yearhigh unemployment record, along with declining mining revenues, has promptedthe Chilean government to revise its growth forecast to 1.75% for 2016, FinanceMinister Rodrigo Valdes told the Senate's budget committee July 11.

The revisedGDP expectation is lower than the 2% forecast in March, according to Valdes,who also noted that the country's fiscal deficit will reach 3.2% of GDP from2.2% in the previous year. The fiscal deficit estimate was wider than the 2.9%predicted in February.

Chile'sunemployment rate in the three months through May increased to 6.8% from 6.4%in the previous monthly period and from 6.6% in the earlier year, BloombergNews cited the country's statistics agency as saying. The spike in thejoblessness level was spurred by a 2% dip in industrial production as well as aweak 0.6% growth in retail sales.

The country'seconomy also continues to weaken as copper prices deteriorate and profits ofmining firms narrow, including Chilean copper giant Codelco, which suffereda pretax loss of $151 million in the first quarter.

Valdes saidthe country should consider tapping into its $26.7 billion-rich sovereignwealth funds to finance the fiscal deficit given the slump in mininginvestment. He noted that public spending in May grew 6% in 12 months, but thefigure would decline to 4.2% by year-end. The lower tax revenues in the miningsector will also lead to a 0.5% decline in government income for the year,Valdes stated.

Despite theend in Chile's commodities-fueled growth, Moody's the country's bond ratings atAa3. The rating agency expects the country to retain a strong fiscal positiondespite increases in its main debt metrics and a slowing economy.