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UPDATE 2-Chile economy to recover in 2015, grow 3.6 pct -finance minister
October 1, 2014 / 3:03 PM / in 3 years

UPDATE 2-Chile economy to recover in 2015, grow 3.6 pct -finance minister

(Adds Finance Minister’s comments)

By Felipe Iturrieta

SANTIAGO, Oct 1 (Reuters) - Chile’s economy should pick up pace next year and grow 3.6 percent versus 2014, due in part to a surge in public spending aimed at countervailing a slowdown, Finance Minister Alberto Arenas said on Wednesday.

“We’re going to use, just as we’ve said from the outset, all the tools our fiscal policy has at hand to strengthen the economy,” Arenas said as he presented the details of the government’s 2015 public spending budget. “When the economy decelerates, spending picks up.”

The government’s spending will rise 9.8 percent in 2015, President Michelle Bachelet said late on Tuesday, as her government seeks to boost investment in education and healthcare and counteract the slowing economy.

That is to a total of $62.0 billion in 2015, including $2.3 billion in extra revenue from Bachelet’s recently implemented tax reform, compared with a budget of around $56.0 billion this year, said Arenas.

Additionally, next year’s budget will authorize the government to issue up to $8.0 billion in local and foreign debt.

A slowdown in mining investment in the economy of the world’s top copper producer has spread to domestic demand, hurting sentiment and complicating Bachelet’s ambitious reform program.

The government and the central bank have forecast a gradual recovery beginning in the fourth quarter, with a stronger performance in 2015. The bank expects growth of 1.75 percent to 2.25 percent in 2014, compared with 4.1 percent last year.

To try to lift growth, the bank embarked on an easing cycle and has gradually cut the key interest rate by 175 basis points to 3.25 percent over the past year.

“What the economy needs besides an expansive monetary policy from the autonomous central bank is a fiscal policy that is also expansive, at a time that the economy has slowed more than was anticipated,” said Arenas.

He forecast an effective fiscal deficit of 1.9 percent of gross domestic product for the end of 2015 and a fiscal structural deficit, which strips out the impact of the economic cycle, of 1.1 percent of GDP.

By 2018 the government will balance its books and reach a fiscal structural balance, Bachelet said on Tuesday. (Writing by Anthony Esposito; Editing by Chizu Nomiyama, Meredith Mazzilli and Andrew Hay)

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