The convergence of metal prices toward their production costs has been somewhat faster than thought a year ago. In the case of copper, the price forecast for 2014 in this Report has been lowered by more than 10 percent in one year. Other demand components, such as consumption, have posted a more gradual deceleration, in line with still favorable, yet moderating, fundamentals. International financial conditions have also been normalizing, which, while positive over the medium to long term, has caused increased volatility, higher risk premiums and capital outflows in emerging markets, together with a widespread depreciation of currencies vis a vis the U.S. dollar. BIS central bankers’ speeches  1  In Chile, contrasting with past episodes, the financial effects have been bounded. The risk premium, for instance, is the same or slightly higher than previous values. Unlike other emerging economies, Chile has seen a drop in interest rates in the recent past, and the Central Bank has not intervened in the forex market by selling reserves as have other countries. Nonetheless, consistently with our macroeconomic policy regime, we have seen a substantial impact on the exchange rate. Actually, the Chilean peso depreciation is in the upper half of the group of emerging economies (figure 1). The real exchange rate has also depreciated significantly and is above its averages for the last fifteen and twenty years (figure 2).
Despite the strong fundamentals of the Chilean economy, we are not immune. We are a small, open economy, so external developments can and do affect us. Now, allow me to describe in detail the macroeconomic scenario we believe to be the most likely one in the coming quarters, and associated risks. Macroeconomic scenario Our baseline scenario assumes that in 2014 the emerging markets will grow below their averages of recent years. China is a case in point, whose growth forecast has been steadily revised downward during the past several months and is now even below the officially defined target of 7.5 percent per year (figure 4). Other Latin American economies, including Brazil, Mexico and Peru, have also revised downward their respective projections. This owes to a number of factors. On one hand, the weaker fiscal and monetary impulse in Brazil, poor growth in Mexico and a slowdown in investment and exports in Peru. On the other hand, Argentina and Venezuela are making substantial corrections to their growth outlooks for the year, of the order of 3 percentage points down (figure 5). All this contrasts with the developed world, where growth forecasts for the year have been revised upward, although with different nuances. Worth noting is the improved performance of the United States and confirmed signals of recovery in the Eurozone.