Table 2 Economic growth and current account (annual change, percent) 2007  2008  2009 (f)  GDP National income  4.7 7.1  3.2 3.8  -0.75 to 0.25 -2.8  Domestic demand Gross fixed capital formation Total consumption Goods and services exports Goods and services imports  7.8 12.0 7.1 7.6 14.9  7.4 19.5 4.2 3.1 12.9  -4.7 -14.3 0.2 -1.7 -10.6  Current account (% of GDP)  4.4  -2.0  -1.8  (f) Projection. Source: Central Bank of Chile. BIS Review 65/2009  11  Figure 9 Effective inflation and inflationary outlook Inflation indicators  EES: Inflation expectations  (annual change, percent)  (annual change, percent)  10  10  8  8  6  6  4  4  2  2  0  0  -2  -2 01  02  03  04  05  06  07  08  7  7  6  6  5  5  4  4  3  3 2  2 02  09  CPI CPIX CPIX1 CPI minus foods and energy  03  04  05  06  Two years ahead  07  08  09  One year ahead  Sources: Central Bank of Chile and National Statistics Bureau (INE).
This is particularly visible in the components that are most sensitive to the cycle and to expectations, such as durable consumption, inventories, and gross fixed capital formation in machinery and equipment. The evolution of indicators of consumers and entrepreneurs’ expectations – IPEC and IMCE – despite a recent small rebound, shows levels below those seen in the few months leading to the crisis (Figure 7). The fall in domestic demand also responds, albeit to a lesser extent, to a cyclical adjustment component. Up to the third quarter of 2008, domestic demand grew at annual rates above 10  BIS Review 65/2009  3  percent during several quarters (Figure 8), driven primarily by investment and durable consumption. Output, meanwhile, was showing clearly lower growth rates, because a significant portion of the demand was deviating to imported goods. The worsening of the financial crisis in the developed markets only sped up and deepened this cyclical adjustment. The drop in domestic demand has been most visible in a fall in imports, limiting the extension of the current account deficit forecast for this year. Accordingly, the impulse of the world economy and the response of domestic demand to the worsened expectations and to the prevailing uncertainty will be negative this year, although partly offset by expansionary monetary and fiscal policies. Because of the connection between our economy’s prospects and the external environment, whatever judgment is made regarding the future pace of global recovery is crucial in the evaluation of our economy and its relevant external environment.