This is how the behavior of credit, interest rates, liquidity, fiscal and monetary policy, and exports have acted countercyclically, which combines with the recent improvement in the terms of trade. As a result, this has been the crisis with the shortest period of contraction and, therefore, with the most immediate recovery. The outlook for Chile also compares favorably with that of many of its peers (Figure 13). Page 7 of 19  However, it is important to recognize the characteristics, biases, and limitations of the recovery so far. While the initial Covid-19 shock affected the economy across the board, in the recovery there has been a high degree of heterogeneity between the sectors most affected by social distancing norms and those that were able to cope with the confinements or recover when they were eased. On the demand side, there is a large gap between private consumption, driven by transfers and massive withdrawals of pension savings, and investment, more influenced by the financial situation of companies and uncertainty. In this context, the recovery is being accompanied by local price pressures, latent risks insolvencies and a precarious recovery in employment. In other words, this is a still very unbalanced recovery, with frictions, mismatches, bottlenecks, and important risks, all of which may jeopardizes not only the speed of the recovery, but also our ability to resume growth at a close to trend rate over a longer term.
However, this recovery process has been slower than we expected a few months ago. In particular, because mobility has not increased as quickly as we had hoped and the social distancing, both compulsory and voluntary, has had more long-lasting effects on some areas of the economy, such as construction and services. The withdrawal of pension savings has triggered temporary increases in consumption, especially of imported goods, which have had a positive impact on sectors such as retail but have also put pressure on the prices of the most demanded products. In fact, inflation data for September and October showed significant upward surprises, mostly concentrated in the categories of durable consumer products, such as home equipment and electronics. The significant depletion, and in some cases exhaustion, of inventories of these products has contributed to this result. Investment, beyond the reactivation of public and private projects, is being affected by the restrictions on mobility that have taken a toll on construction, the financial situation of companies, and the persistent uncertainty, so it is lagging further behind than consumption. The labor market, meanwhile, has shown some recovery, with an increase in employment compared to mid-year, but mostly concentrated in non-salaried jobs. Very recently we learned of the Metropolitan Region’s rollback to Phase 2 of the “Step-by-step” plan, which could take some of the impulse off activity at the margin. However, it could also help to avoid more drastic measures in the future by articulating a more orderly transition towards a vaccine.