1887

Executive summary

Sound macroeconomic policies and a commodity price boom have yielded an enviably long phase of economic growth and job creation. The banking system is healthy, and the strong government financial position has been rewarded by low sovereign spreads and credit rating upgrades. The economy is projected to continue growing at a healthy pace. Historically-low unemployment has resulted in some labour-market tightness, but inflation remains contained. Strong domestic demand and weakening foreign markets have pushed the current account balance into deficit, which has been financed mostly through FDI, thus limiting the risk of capital flow reversals. Downside risks to growth could emerge mainly from a sharper fall in the copper price. Inflationary pressures could also be reignited by the tight labour market. Monetary and fiscal policies are well positioned to address these short-term risks, with the help of the floating exchange rate.

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