On the domestic front, several years of subdued growth may have caused some underlying erosion that could compromise the economy’s ability to grow in the medium term. Deterioration of the labor market is particularly risky because it could weaken household consumption, which, by growing 2%-2.5% annually over the last three years has provided support for domestic demand and, ultimately, inflation. On the other hand, private investment may recover faster if export demand and expectations improve faster than expected. Longer-term perspectives 7  18. In 2012-2013 the Chilean economy was exposed to a substantial external shock given by the end of the commodities super cycle. However, contrary to past episodes, the economy did not fall into a recession. In fact, despite a substantial slow down, the signs of an economic contraction are not visible. Salaried employment slowed down but no massive layoffs have taken place. Companies saw their margins compressed by rising input costs and weak demand, but bankruptcies have not picked up. The demand for loans has weakened, but NPLs have remained stable. 19. The former is due to two major reasons. First, the macroeconomic policy framework has provided countercyclical support while allowing relative prices to adjust to the new circumstances via the exchange rate. Between mid-2013 and early 2016 the Chilean peso depreciated some 55%, putting some pressure on inflation, but the Central Bank kept monetary policy on a steady course until inflation decelerated from nearly 5% to less than 2% in less than a year. 20.
Figure 4 GDP  Non-natural resources GDP  (annual change, percent)  (annual change, percent)  8  8  8  Construction  6  6  6  Wholesale and retail trade  4  4  4  2  2  2  0  0  0  4  Rest  2  Personal services  8 6  Total 0  Manufacturing  -2 -2  -2 -4 14  15  Natural Resources 16  -2  Business services -4 -4  -4  14  15  16  Source: Central Bank of Chile. 3  7. On the expenditure side, domestic demand—excluding changes in inventories—also tended to decelerate throughout last year. Weakness was most evident in investment in construction and other works, which contracted by 4.9% in annual terms during the fourth quarter (average growth of 0.5% between the first and third quarters). 8. Private consumption, in line with its behavior in previous years, provided support to the economy, growing by more than 2% annually throughout 2016, on the basis of wage growth and a low unemployment. However, it should be noted that while consumption of nondurables and services has remained relatively stable, durable goods have recovered, partly due to the appreciation of the peso during the last year and the necessary replenishment of inventories following several years of weak growth and even contraction. Something similar is observed with gross fixed capital formation in machinery and equipment.