Upward Climb

With less than five months to go before the first presidential round in November and just hours before the ruling party’s primaries, the political temperature in Chile naturally rises. In this escalation, which isn’t as obvious as in previous processes, economic debate has played a prominent role.

This prominence is welcome, as is the apparent consensus among the contenders on the urgent need for the country to emerge from the low-growth trap it has been stuck in for over a decade. However, at a deeper level, the debate still leaves much to be desired, leaving a taste of an international tour through external models, where Sweden, Norway, Singapore, Ireland, and Iceland are common destinations. The journey to Portugal or Spain that many politicians embarked on is not only far from complete, but the goal seems increasingly distant.

It is in this context that some independent analyses have emerged in recent days, which should attract more attention from those aspiring to lead the country, revealing not only where greater effort is needed but also how uphill the task will be to escape from the quicksand of stagnation of the last decade.

The first of these analyses is contained in a concise and precise document prepared by two IMF experts, who assert that while the country has room to grow at a faster pace (as other nations that have previously reached a comparable income level did), the difficulties faced today are greater and of a different nature than those a few years ago. These include demographic trends toward an aging population and the evident slowdown of the global economy.

In figures, the IMF experts’ document estimates that the country faces a “demographic burden” (population aging and its consequent effects on labor participation) that “by itself reduces Chile’s potential growth by 0.25 percentage points.” Meanwhile, the contingent circumstances of the international production cycle and their effects, among others, on the growth of the United States threaten Chile’s outlook, where a possible one-point reduction in U.S. expansion over the next decade could result in an additional 0.8 percentage point decline in Chile’s potential growth.

If this analysis is connected to the projections included in the recent Monetary Policy Report (IPoM) from the Central Bank (which just reaffirmed modest GDP expansion ranges for 2026 and 2027 of between 1.5% and 2.5%), it supports the depressing forecast anticipated by the IMF experts, which “suggests a long-term trend growth of around 1.9%” if the assumptions of the analysis hold.

In summary, a bleak outlook, to which a myriad of well-known factors can be added that complicate the capacity to escape the hole, one of the least mentioned symptoms being the dramatic productivity problem the country has dragged for years. The well-known diagnosis of nearly 16 years in which productivity has not contributed to growth (National Commission for Evaluation and Productivity, January 2025) was recently supplemented by Clapes UC, which added fresh evidence with its Productivity Index for the first quarter of 2025, noting a year-on-year variation of zero.

Today, the size of the state, public apparatus bureaucracy, efficiency of fiscal spending, severance pay for years of service, “demand stimulus,” taxes, and contributions are the topics energizing the debate. All necessary issues to address, and voters need to know what is proposed. However, there are a couple of contextual factors mentioned in the IMF analysis that should be considered: that short-term macro stimulus is no longer an alternative and that structural measures on the supply side (not demand, it must be said) are needed.

The list of mechanisms referenced in the IMF document may seem less attractive or perhaps overly familiar (and without real progress for years), but they remain important in the debate: increased spending on R&D (Chile allocates about 0.4% of GDP to this while the OECD average is 2.75%), improving regulatory efficiency and permitting processes, and stimulating labor participation by enhancing access to childcare services, where it is known that the debate over universal nursery care has been ongoing for more than 15 years.