Chile GDP falls more sharply than expected in Q4 amid investment slump

Chile's economy fell into a funk at the end of 2016 as investment plummeted, with weakness set to spill over into 2017, although economists sounded a more positive note on the backhalf of this year.

Gross domestic product in South America's most developed economy shrank at a 0.4% quarter-on-quarter pace in the last three months of 2016.

That was twice the drop economists had forecast and followed a quarterly pace of expasion of 0.9% over the previous three months.

Year-on-year, growth slowed from 1.8% in the third quarter to 0.5% in the fourth, as expected.

Domestic demand was hardest hit, falling back at a quarterly pace of 1.0% and undoing the prior quarter's growth, as gross fixed capital formation pluned 5.6% after rising just 0.5% in the previous quarter.

A 1.7% rise in private spending on the other hand helped consumption to advance by 0.3%, amid an improving underlying trend, according to Carlos Abadia, senior international economist at Pantheon Macroeconomics, and helping to offset weaker public outlays.

The external sector performed well, growing 3.0% while imports were up 0.8%.

In real terms, GDP for 2016 was only 1.6% higher, its weakest pace since 2009.

The first quarter of 2017 would see little improvement due to the workers' strike at the Escondida mine, severe wildfires, and poor business confidence, Abadia said.

However, uncertainty ahead of the November general elections permitting, Abadia was more upbeat on the outlook for the second half, thanks to an expected improvement in both external and domestic factors.

Copper prices were also expected to be more buoyant and low inflation and interest rates should see private spending continue to perform well, he said.