Others, however, have restricted their monetary policies responding to higher inflationary and exchange rate pressures related to fiscal, monetary or external vulnerabilities. Anyway, the slower growth expected in China, lower commodity prices, less expansionary international financial conditions, the contractionary adjustments in some large emerging economies and the need to progress in the strengthening of the Chinese financial system plus its growth re-composition are behind the vision that emerging economies will expand at a slower pace than during the last three years. The baseline scenario of our Monetary Policy Report foresees that, after expanding at 3.4 percent in 2013, our trading partners will grow by 3.6 and 3.8 percent in 2014 and 2015, respectively, somewhat less than we thought in September. In this context, inflation has been below expectations in both emerging and developed economies. Commodity prices have dropped. Geopolitical tensions in the Middle East have eased with respect to a few months ago, as have some refinery problems in the United States, which led to lower actual and expected fuel prices compared with September. The copper price, after remaining fairly stable for some months, posted a decline in recent weeks, so the price outlook for the metal remains unchanged from the previous Report. Accordingly, the baseline scenario assumes that the terms of trade will not divert from those in the last Report (table 1).
As I have already mentioned, our baseline scenario estimates that the Chilean economy will expand 4.2 percent in 2013, and between 3.75 and 4.75 percent in 2014, slightly less than forecast in September. In 2014, gross fixed capital formation will grow near the rate of this year. As for consumption, the baseline scenario foresees a slight deceleration from 2013. This forecast combines, on one hand, a moderation in private income growth, inflation converging to 3 percent and an exchange rate depreciation that will affect durable consumption. On the other, still optimistic consumer expectations and a strong labor market – although not as tight as this year – that will continue to underpin consumption. This scenario assumes an external impulse similar to September’s. Furthermore, it considers that part of the inventory depletion of recent quarters is an unwanted development, so it will be reversed in the coming months. Taking into account the weaker imports and stronger exports, this scenario also foresees a narrowing of the current account deficit compared with the September estimate: 3.2 percent of GDP this year and 3.7 percent in 2014. The surprise here – a positive one indeed – is that some of the trends that were anticipated in previous reports, have come sooner and stronger. In particular, the maturation of the mining investment cycle, which has been one of the main sources of the higher deficit due to its import component, has allowed copper exports to grow beyond expectations, while capital imports have begun to decline.