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Chile Economy Showing Signs of Recovery, Finance Minister Velasco Says

By Nathan Gill and Sebastian Boyd
July 23 (Bloomberg) -- Chile’s economy may be starting to recover from its slump as extra government spending spurs growth, Finance Minister Andres Velasco said today.

Velasco has spent more than $4 billion this year on tax cuts and extra outlays. He will pull $8 billion from Chile’s offshore savings funds in 2009 to help pay for the stimulus as well as to plug the budget deficit caused by slowing growth and lower receipts from mining.

Chile is facing the deepest recession since 1999 after revenue from exports declined and a virus ravaged its salmon farming industry. The economy shrank faster than forecast in the first half and probably contracted in the second quarter from the first, the central bank said on July 8.

“These policies have effects, but they don’t occur overnight, they don’t happen in one month or one quarter,” Velasco said. “We have to continue working, we have to keep a cool head and at the same time be prudently optimistic.”

The government has no plans for more stimulus measures and won’t tap its sovereign wealth funds again, Interior Minister Perez Yoma told reporters in Santiago today.

‘Incipient Signs’

Incipient “green shoots” are starting to show in the Chilean economy, according to a research note published today by economists at Santiago-based brokerage Celfin Capital SA.

Construction and sales of real estate are picking up after they slowed at the end of last year, Velasco told reporters today in Santiago.

Unemployment in the Santiago area fell to 11.9 percent in June from 12.8 percent in March, according to a report published today by economists at the University of Chile in Santiago.
Chilean President Michelle Bachelet, in Asuncion, Paraguay, for a regional trade summit, welcomed the decline in Santiago’s unemployment rate.

“We see incipient signs that the crisis has touched bottom,” Bachelet said, according to the government’s Web site.

Raphael Bergoeing, an economic adviser to opposition presidential hopeful Sebastian Pinera, today accused the government of having done “little or nothing to create new jobs,” according to an e-mailed statement from Pinera’s campaign headquarters.

Chileans go to the polls in December to vote for a new president as presidents are limited to one term.
Retail sales in the Santiago region rose 1.1 percent in June from the same month a year earlier, according to an e-mailed statement from the National Chamber of Commerce.

Sales fell less than expected in the first half, leading the Chamber of Commerce to increase its forecast for retail sales this year.

Trajectory

The price of copper, Chile’s biggest export, reached a nine-month high yesterday after imports by China, the biggest buyer of the metal, reached a record for the fifth month in June.

When ministers met in October to set priorities for this year, they decided to focus on protecting jobs, aiming to keep the national jobless rate below 12 percent, Perez Yoma said.

Unemployment nationwide probably rose to 10.7 percent in June, the highest since 1994, according to the median forecast of five economists surveyed by Bloomberg.

Chile’s economy may shrink 1.4 percent this year, Cristian Gardeweg and Cesar Perez-Novoa, economists at Celfin Capital SA in Santiago, wrote in a note to clients. That’s almost twice as fast as the government’s most pessimistic forecast of a 0.75 percent contraction.

Gross domestic product may expand in the third quarter from the second, they wrote. By the last three months of the year, Chile’s economy may grow as fast as 3.2 percent year-on-year, they wrote.

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