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Fitch: Chile to post 3% GDP growth in 2018, but political issues remain

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Fitch: Chile to post 3% GDP growth in 2018, but political issues remain

Fitch Ratings expects Chile to post GDP growth of 3.0% in 2018, higher than the 1.8% average it recorded from 2014 to 2017.

Economic growth will be driven by external conditions and business confidence, as signs of a recovery in mining investment emerge and as certainty surfaces with the rise in copper prices and the change in government.

However, Fitch believes the improved medium-term growth outlook will not result in low public debt metrics and an increase in the per capita income. For one, Chile's new president, Sebastián Piñera, will face difficulties in passing reforms that support growth due to a lack of legislative majority and a more divided party composition in congress.

"These legislative challenges, combined with [Piñera]'s relatively modest share of the vote in the first round of the presidential election and low voter turnout, suggest a relatively limited political mandate for business-friendly reforms," Fitch said.

Piñera will also face fiscal challenges, given that the impact of the previous administration's reforms may have been "roughly neutral," Fitch said. Despite the tax reform fully funding the government's social spending initiatives, additional adjustment measures to offset the fall in copper revenues were not pursued, the rating agency noted.

Fitch expects the central government deficit will decline to 2.1% of GDP in 2018 from 2.8% last year, primarily due to higher copper prices.