The external macroeconomic scenario has become considerably more uncertain. Part of this is due to the changing announcements about U.S. trade policy and its implications. Although the impacts of this situation on global activity are not yet evident, expectations are that they will be negative. Its magnitude is expected to be greater in the United States than in the emerging world, since, in contrast to other episodes of uncertainty, financial conditions have responded favorably. More recently, an escalation of military conflicts in the Middle East has added, which scope, development and possible impacts on the global and Chilean economies are unknown. At the local level, activity was more dynamic than anticipated in the first quarter, supported by some temporary elements. Inflation has evolved in line with expectations and the upward risks that had been highlighted in the first part of the year have moderated. The central projection scenario shows no major changes. GDP is still estimated to evolve around its trend in the coming quarters, while inflation is foreseen to converge to 3% during the first half of 2026. Over the medium term, the escalating trade conflict will continue to affect the economic outlook. Furthermore, recent events in the Middle East introduce a new source of uncertainty, which could develop into more complex scenarios. However, if the central scenario of this IPoM materializes, in the following quarters the Monetary Policy Rate (MPR) will be approaching its range of neutral values. The Board will assess the future movements of the MPR considering the evolution of macroeconomic conditions and their implications for the convergence of inflation.

The widespread increase in tariffs announced by the United States government at the beginning of April has had significant repercussions on the external scenario. As noted in the first half of the year’s Financial Stability Report, this has led to a marked increase in global economic uncertainty, in a context where other risk factors, such as geopolitical conflicts and the high fiscal debt of some countries, are still present (figure 1).

The escalation of the military conflict in the Middle East adds further uncertainty to this scenario. This event began to be observed more strongly after the statistical cutoff date for this Report —June 11— so its effects are not considered in the central projection scenario.

Regarding the impact of trade tensions, their effect on global activity is estimated to be negative. However, the changing development of the process —including announcements, retaliation from other countries, and postponements— has made it difficult to assess their short-, medium-, and long-term repercussions.

The reaction of global financial markets has not been the usual one seen in events of high uncertainty, and an increase in the risk of U.S. assets has been observed. This may reflect heightened concerns about the U.S. fiscal and institutional situation, which has diminished the attractiveness of all types of financial assets in that economy (figure 2). At the same time, there is consensus that the main effects of tariff adjustments will fall on both activity and inflation in the United States. In this scenario, according to information available up to the statistical cutoff, the Federal Reserve adopted a more cautious stance regarding the federal funds rate.

The greater relative risk of U.S. assets has led to a more benign evolution of financial conditions in the emerging world —including Chile— than would be expected in the face of a shock of this magnitude. Thus, long-term interest rate differentials with respect to the United States have narrowed in various economies, currencies have strengthened against the dollar, and stock markets have risen.

Domestically, as in other emerging economies, the impacts of the trade conflict on activity have not been significant so far. High-frequency information does not show substantial changes from the previous trends of its foreign trade, maintaining the dynamism of exports and imports of goods. Moreover, the confidence indexes do not show that the external situation is affecting them (figure 3).

The inflation scenario has evolved as expected, with core inflation (excluding volatile items) running lower than anticipated. In May, total and core CPI annual change was 4.4% and 3.6%, respectively (4.7% and 3.9% in February). The smaller increment of the core component was driven, in particular, by the prices of some foods and services (figure 4).

Upward risks for inflation, which had been highlighted in the first part of the year, have moderated. On the one hand, two-year inflation expectations have been realigning with the 3% target while, on the other hand, cost shocks from previous quarters are not seen to be causing larger-than-expected second-round effects (figure 5).

In the first quarter, domestic activity was more dynamic than expected, explained again by the performance of exporting sectors. During this period, non-mining GDP grew 1.2% quarter-on-quarter in its seasonally adjusted series (0.7% in the previous quarter). The contribution of fruits, manufacturing, and fishery production stood out, along with a better performance in several service and retail and wholesale trade sectors, supported by the greater number of foreign tourists (figure 6). The latest Imacec showed a certain reversal of supply factors, while services remained dynamic.

Domestic demand has continued to grow, as projected. Private consumption expanded again in the first quarter, particularly for goods. This occurred in a context of mixed evolution of the main fundamentals of spending. On the one hand, the debt and financial burden levels continue to decrease, while wages continue to show high rates of expansion, associated with recent legislative changes (figure 7).

The Business Perceptions Report (IPN) and Survey of Expectations and Price Determinants (EDEP) suggest some degree of concern among firms about the future trajectory of wages. On the other hand, labor costs are rising in tandem with sluggish job creation and an increase in the unemployment rate (figure 8).

Gross fixed capital formation (GFCF) performed poorly in the first quarter, with significant differences between sectors remaining. GFCF posted zero quarterly variation at the beginning of 2025, in both machinery and equipment and construction and works components. By sectors, the dynamism of mining investment continues to contrast with the weak figures of other activities (figure 9).

Still, leading indicators point to a stronger boost from investment going forward. High-frequency data suggest that GFCF has shown a more favorable performance lately, especially for imports of capital goods. The latest survey of the Capital Goods Corporation (CBC) showed a significant increase in planned investments for 2025 and the next years, particularly in mining and energy, with additional initiatives in the formalities stage (figure 10).

Projections

The central projection scenario resembles the forecasts of the past six months. Compared to the December and March reports, there is somewhat more dynamic activity in the short term and, regarding inflation, there is a moderation of upward risks and a similar time frame for its convergence to the target.

Globally, however, risks have increased significantly. The tariff hike announced by the United States is an unprecedented event of considerable magnitude. So far, the reaction of the financial markets has been benign and no significant real effects have been observed. However, scenarios of worsening external conditions and negative impacts on the global economy beyond projections cannot be ruled out. The possible impact of military tensions in the Middle East, not included in these projections, is added.

In the central scenario, the outlook for the international economy contains few adjustments. Compared to March, trading partners’ growth is lowered by one tenth of a point on average for the period 2025-2027 (2.6%), but by more for the United States. This limited correction responds to two main factors. On the one hand, a significant part of the effects of the trade conflict had already been covered in March, when a substantial cut in projected growth for the United States was made. On the other hand, the markets’ responses have mitigated the impact of the financial channel (figure 11).

Regarding commodity prices, the copper price projection remains unchanged —averaging US$4.3 between 2025 and 2027— while the oil price projection is slightly lower (figure 12). The latter, as noted, does not consider developments after statistical cutoff.

The central scenario assumes that the impact of trade tensions on the Chilean economy will be limited. To date, it is known that a fraction of domestic shipments to the United States are subject to a 10% tariff. Trade with the rest of the world has not been affected and a potential shift of exports to other destinations would probably have a minor impact on activity. Likewise, the more positive evolution of financial variables such as interest rates or the stock market and the limited deterioration of local agents’ expectations would anticipate limited effects on investment. In any case, if the conflict in the Middle East escalates further, it could lead to increased global uncertainty that could affect the global and local economies.

As for inflation, trade diversions would reduce the prices of some of the products imported by Chile. This would be mainly concentrated in durable goods, with a negative impact on the annual change of the CPI that is assumed to be of the order of 0.3 percentage points accumulating throughout the projection horizon (table 1).

Thus, the bigger share of adjustments made to forecasts in this IPoM originates domestically. The GDP growth range for 2025 is revised to 2.0%-2.75% (1.75%-2.75% in March), thanks to the better performance early this year. This leaves a higher starting point for activity —and a less negative output gap in the near term— which is expected to converge to a pace of expansion consistent with its trend as the transitory elements that contributed to the higher growth in early 2025 gradually fade away.

For 2026 and 2027, the range for GDP growth is maintained at 1.5%–2.5%. This factors in the effects of the deterioration of external conditions and the effects of more promising prospects for GFCF (table 2).

The greater dynamism anticipated for investment will be focused mainly on large-scale mining and energy projects, whose budgeted amounts are reviewed with special emphasis starting in the second half of 2025. Thus, the GFCF growth estimate is maintained at 3.7% for 2025, and raised for 2026 and 2027 to 3.6% and 3.3%, Private consumption will continue to expand around 2% over the projection horizon. The dynamism of real labor income and the fall in the financial burden of households, among other elements, will support this part of spending (figure 13).

For 2025, the central scenario assumes the fiscal spending growth estimated in the Public Finances Report (IFP). From then onwards, it considers the expenses committed as detailed in said Report.

With respect to March estimates, the inflation trajectory is not significantly changed throughout the projection horizon and is expected to achieve the 3% annual target in the first half of 2026. This is the result of several factors: One is the somewhat more dynamic domestic demand, coupled with a relatively more depreciated real exchange rate over the projection horizon; another is the lower inflation resulting from trade diversions and the lower outlook for fuel prices. In this scenario, core inflation will stand around 3% during the latter part of 2025 (figure 14).

Monetary policy

In recent months, inflation has evolved in line with projections and the upward risks that had appeared early in the year have moderated. Activity has exceeded projections; however, recent events in the Middle East have introduced a new source of uncertainty, which could develop into more complex scenarios.

If the central scenario of this IPoM materializes, in the following quarters the MPR will be approaching its range of neutral values. The Board will assess the future movements of the MPR considering the evolution of macroeconomic conditions and their implications for the convergence of inflation. It also reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.

Regarding the sensitivity scenarios of the MPR corridor, the upper bound represents a situation in which domestic demand is strengthened above expectations. This may come from a context in which business and household confidence improves, due to a decrease in global tensions, higher local growth prospects, or investments whose effects on the labor market and earnings are greater than anticipated.

The lower bound corresponds to a scenario in which the external scenario deteriorates, negatively affecting the global and local economies. This could be the case if trade tensions flare up and/or global uncertainty soars. This could lead financial markets to behave in a manner similar to previous episodes of risk aversion, including a depreciation of the peso. In addition to the financial repercussions and the fall in global demand, there would be the added impact of greater pessimism among agents, with downward effects on domestic demand.

International developments also define other sensitivity scenarios within the MPR corridor. The supply shock associated with the new tariffs and the impacts of trade diversions on the local economy could be different from the central scenario, in particular the reaction of the prices of products imported by Chile (figure 15).

As aforesaid, the risks surrounding the global scenario are high in the current context, with potentially significant deviations. The complexity of the external geopolitical scenario —a mixture of political, economic, and military conflicts— does not allow to rule out more disruptive episodes. In fact, what happened in the Middle East at the close of this IPoM is an example of the relevance of factors that in the past were considered less likely. At the moment, its scope, development and potential impacts on the global and local economies are unknown, hence the need to monitor it closely. The Chilean economy is not immune to international events. However, it has the capacity to mitigate the impact of new shocks, including a monetary policy that has room for action should more substantial adjustments be necessary for inflation to converge to the target.