Economic Downturn Hits Chile: Indicators Shift from ‘Good and Improving’ to ‘Good, but Worsening’

The Chile Economic Barometer developed by the Institute of Political Science Public Policies of the Universidad Andrés Bello (UNAB), for May, delivered a new blow to the government of José Antonio Kast and revealed a deterioration from the previous month, evident in the Economic Index IPP UNAB moving from the quadrant “Good and Improving” to “Good, but Worsening”.

Specifically, this indicator saw a sharp decline from 36.9 to 24.4 points; a monthly change of -12.5 points, marking the lowest level recorded in the past seven months, indicating a significant loss of momentum in the national economic activity.

The report detected widespread deterioration across all three sub-indices that comprise the IPP UNAB, particularly highlighting a decline in economic expectations, increased inflationary pressures, and signs of weakness in the labor market. This situation unfolds against an international backdrop marked by geopolitical tensions, financial volatility, and high levels of uncertainty that have directly affected the performance of the Chilean economy.

Distribution of Variables and Quadrant Changes

The recomposition of variables in the Barometer reflects a shift towards less favorable conditions, with the category “Only Good” diminishing from 18 to 16 variables (from 75.0% to 66.7% of the total), while the “Only Bad” group increased from 6 to 8 variables (from 25.0% to 33.3%). Particularly concerning is that only 8.3% of the variables fall under “Good and Improving,” a significant decrease from 33.3% recorded in April.

Moreover, “Good, but Worsening” increased from 4 to 8 variables: “inflation, real wages, economic uncertainty, delinquent debtors, business confidence, exports, IPSA, and average consumer credit rates.”

In total, thirteen quadrant changes were recorded: one positive and twelve negative, indicating a substantial shift in economic dynamics. The “Improving” category plummeted from 12 to 4 variables (from 50.0% to 16.7%), while “Worsening” rose from 5 to 14 variables (from 20.8% to 58.3%).

Deterioration of Expectations and Confidence

The Expectations Sub-Index suffered a pronounced drop from 54.8 to 34.9 points (-19.9 points), deepening its decline for the second consecutive month. Consumer confidence also saw a reduction, transitioning from “Good, but Worsening” to “Bad and Worsening.”

According to the report’s analysis, rising fuel prices, following changes in the MEPCO applied by Kast’s government, and the international context filled with geopolitical tensions significantly impacted household sentiments, particularly affecting economic expectations and decisions regarding consumption and savings.

The IPSA stock index also showed considerable moderation, declining from an annual variation of 46.3% to 24.9%, leading its transition from “Good and Improving” to “Good, but Worsening.” This regression occurs in a context of increased international uncertainty, where persistent concerns tied to geopolitical conflicts and the lack of clear signals contributed to heightened caution in financial markets.

Inflationary Pressures and Macroeconomic Weakness

In May, the Macroeconomic Situation Sub-Index dropped from 10.9 to 9.4 points, shifting from “Good and Improving” to “Good, but Worsening.” Exports showed a significant slowdown, dropping from an annual variation of 16.24% to 5.56%, in spite of historically high copper prices. This trend is in line with the 4.9% decrease in exports reported by the Central Bank in its National Accounts Report for the first quarter, which also diagnosed a 0.5% contraction of GDP.

Foreign direct investment experienced deterioration, falling from $2.566 billion to $1.139 billion, transitioning from “Bad, but Improving” to “Bad and Worsening.”

Labor Market, Consumer Situation, and Rising Inflation

The Consumer Situation Sub-Index recorded a drop from 24.9 to 17.1 points, with unemployment rising from 8.3% to 8.9% in the mobile quarter of January-March 2026. Particularly concerning is the female unemployment rate, which reached 10%.

Inflation climbed from 2.8% to 4.0% over twelve months, approaching troubling thresholds defined by the Central Bank. Meanwhile, real wages displayed a moderation (2.2% versus 2.6% previously), while job creation, the employment rate, and the Online Job Advert Index indicated signs of weakening in labor demand.

Setback, Vulnerability, and Internal Fragility

In conclusion, the scenario presented by the May Barometer shows a concerning setback in the Chilean economy during May, revealing that the winds of optimism experienced in previous months have given way to a landscape of increasing uncertainty and deterioration, “highlighting vulnerabilities in both the international context and the Chilean labor market.”

The report warns of clear signals of concern regarding macroeconomic performance and the capacity for growth of the Chilean economy, as well as the persistence of internal fragilities that, despite having been flagged in previous editions, “show signs of deepening,” necessitating urgent attention from La Moneda.

Next, you can review the data from the Barometer of the Economy of Chile:

20260527-IPP-UNAB_Informe-Barometro-de-la-Economia-Chilena_mayo Download

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