Thus, GDP will grow in the 5.5%–6.5% range in 2011, with a smaller contribution of supplyside sectors – i.e., fishing, mining and hydroelectric generation – than foreseen in the latest IPoM, while the other sectors will converge to trend growth as the monetary and external impulses are normalized (table 2). Prospects for trend growth are similar to September’s, that is, around 5%. In this scenario, which also features improved terms of trade, the current account of the balance of payments will post a surplus of 0.3% of GDP in 2010, contrasting with the deficit forecast in September, owing mainly to better export prices. However, estimations yield that in 2011 the current account will reach a deficit of 1.4% of GDP. Y-o-y headline inflation has remained in the lower zone of the tolerance range, while the core measure CPIX1 is still in negative territory. This low core inflation has been partly offset by increases in the prices of foodstuffs, both perishable and non-perishable and, most recently, by increased fuel prices (figure 8). Since last July, there has been a renewed, markedly ascending trend in food prices in the global market. Given the experience of 2008, it has become again cause for concern for policy-makers in some countries. As shown in a box in our IPoM, in Chile a little more than one percentage point of inflation is due to food prices. Until now, the recovery of margins in the aftermath of the crisis has allowed cushioning the local inflationary effects of world price increases.
This time around, the US strongly increased fiscal expenditure and borrowing, which was used to finance the purchase of overpriced housing. As we now know, and warned insistently before the crisis burst, this mix was bound to lead to severe adjustments, sooner or later. High terms of trade, capital inflows and growth rates have resulted in exchange rate appreciations in most emerging and oil-exporting economies (figure 5). In real terms, the current level of the exchange rate is at its lowest in the past decade in most emerging economies (figure 6). Vigorous economic growth in these economies means also strong currencies, while the opposite is true in developed countries. As I said before, the high indebtedness of developed economies holds back domestic demand growth. Meanwhile, in emerging economies domestic demand growth is thwarted by constraints in domestic supply, which require redirecting purchases towards imported goods. The adjustment of the global economy calls for a change in demand composition, and the exchange rate adjustments works in that direction. It is logical to expect that once the developed economies recover their strength, their currencies will follow suit. The transition may take some time, however. Although the adjustment is good for the world economy, it entails tensions that may require exceptional policies. Thus, several emerging economies, Chile included, have taken action to moderate the exchange rate adjustment.