(Adds growth forecast, analyst’s comments, minutes, background)
By Anthony Esposito
SANTIAGO, Sept 30 (Reuters) - An economic slowdown continues to grip Chile, government data showed on Tuesday, when the world’s top copper producer posted its biggest monthly drop in manufacturing production in two years and higher jobless figures.
The jobless rate for the June-through-August period rose to 6.7 percent, while factory output fell 4.9 percent in August from a year earlier, well below market forecasts.
Production fell across the board, with declines in the important metals, agricultural chemicals, wood pulp and food industries, according to government statistics agency INE.
A slowdown in mining investment in Chile has spread to domestic demand, hurting sentiment and complicating President Michelle Bachelet’s ambitious reform program.
To counteract the slowing economy, Bachelet’s government plans later on Tuesday to send Congress its 2015 budget, which would provide the biggest boost in spending in seven years.
The IMACEC activity index, which measures Chile’s economy, is likely to have grown 0.5 percent in August from a year earlier, according to 14 analysts and economists polled by Reuters on Tuesday. That would be its slowest pace since March 2010, when the country was dealing with the aftermath of a devastating earthquake and tsunami.
Retail sales, a barometer of consumption and a mainstay of the economy in recent years, rose a relatively anemic 1.7 percent in August from a year earlier, the INE data showed.
The agency said consumption was slowing in spite of relatively low unemployment and strong wage growth as consumer confidence deteriorated and access to bank loans became more difficult.
“The persistent weakness in retail sales, particularly sales of durable goods, amid a still-healthy labor market reinforces the perception that subdued expectations have been an important drag on domestic demand and activity lately,” Goldman Sachs said in a note to clients.
Chile’s 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 boost growth, the bank has gradually cut the key interest rate by 175 basis points to 3.25 percent over the past year.
However, the minutes for the bank’s Sept. 11 monetary policy meeting, released earlier on Tuesday, suggested that the scope for further rate cuts was narrower.
“Some directors suggested that future policy calibration is likely to be more sensitive to incoming data on growth and inflation,” said Goldman Sachs economist Tiago Severo. “That is, the easing cycle may be not over yet, but its end is near.” (Reporting and writing by Anthony Esposito; Editing by W Simon, Rosalba O‘Brien, Peter Galloway and Lisa Von Ahn)