Chilean Peso Crashes as Technical Recession Confirmed Amid External Turmoil

The Chilean peso closed Tuesday as the worst-performing emerging market currency globally, with the dollar surging more than ten pesos by the close, on a day when Chile had to simultaneously process the confirmation of what the government had refused to acknowledge: that the economy went through a technical recession during the first half of the year, and that the external conditions surrounding the country are deteriorating rapidly.

The Central Bank confirmed that GDP fell 0.2% year-on-year in the second quarter, adding to the 0.3% contraction recorded in the first three months of the year. In seasonally adjusted terms, the second-quarter contraction was -0.02% — rounded to zero in the official presentation — which technically completes two consecutive quarters of declines under either of the two conventional metrics. Domestic demand hit the brakes: it went from 2.3% growth in the first quarter to just 0.1% in the second, with household consumption decelerating from 2.5% to 1.2% and investment posting zero variation, its lowest level since the third quarter of 2024. The cumulative first-half figure shows a 0.3% contraction, the worst first half since the pandemic.

Finance Minister Jorge Quiroz tried to contain the semantic impact of the figures. "It's data from the past. We're talking about things that already happened," he said after the results were released, taking refuge in the seasonally adjusted variation rounded to one decimal place to deny the existence of a technical recession — a stance he maintained despite having publicly ruled out even that possibility on July 5. Economists did not follow him in that reading. Alejandro Fernández, of Gemines Consultores, noted that "both measurements show consecutive negative variations," while Felipe Alarcón, of EuroAmérica, argued that "the two conditions are practically met regardless of the base of comparison." For Rodrigo Vergara, former Central Bank governor, the diagnosis was more direct: "We had a technical recession during the first part of the year, but everything indicates we've already come out of it." The market, for its part, chose to look ahead: the IPSA weathered the global turbulence and closed higher near 11,200 points, betting that second-half figures will show a recovery. Analyst consensus expects growth of between 1% and 1.2% for all of 2026, with a rebound toward 3% in 2027.

The tension between that forward-looking optimism and the fragility of the present is sharpened by the deterioration of the external environment. Copper lost the psychological mark of US$14,000 per ton in London, pressured by rising global long-term rates and by the geopolitical escalation in the Strait of Hormuz, where Donald Trump declared the maritime passage as "new territory" of the United States, triggering a belligerent response from Iran and pushing Brent to its third consecutive advance, to near US$91 a barrel. For Chile, that combination — weak copper, expensive oil, strong dollar — is particularly adverse: it puts pressure on domestic energy costs, erodes mining fiscal revenues, and fuels inflation expectations at a time when Minister Quiroz has already announced a $30 increase in gasoline prices and $90 in diesel.

It is precisely this fiscal urgency that explains the acceleration of the plan to sell non-essential state assets that Quiroz presented before the Chamber's Finance Committee. The minister has urged all ministries to draw up inventories of liquidable assets, with the aim of injecting resources into the Fondo de Estabilización Económica y Social (FEES), whose current level is insufficient as a cushion against an international backdrop he himself described as potentially more complex. "Recovering it through achieving a surplus takes a very long time," he acknowledged, in an implicit admission that the prospects for fiscal consolidation through growth are, at best, uncertain. The Consejo Fiscal Autónomo had warned this week that meeting the structural balance target of -2.6% of GDP for 2026 requires a net spending reduction of US$674 million plus an improvement in structural revenues of US$211 million — conditions that the body itself considers at risk. The Finance Ministry reaffirmed that commitment before Congress, although the credibility of that anchor depends on adjustment measures that have yet to materialize.

Against this backdrop, regulatory and investment activity offers some genuine points of support. The Servicio de Evaluación Ambiental recommended approving the US$11 billion HNH Energy green ammonia megaproject — the second-largest investment in SEIA history — with a Coeva scheduled for August 26 that could constitute a favorable signal for the clean energy project pipeline. At the same time, AquaTerra submitted to the SEIA a multipurpose desalination plant for the Coquimbo region worth US$370 million, with partial operations projected for 2031 and full capacity by 2041, in a sector that has accumulated structural water pressures. On the logistics front, EFE and the municipality of Frutillar formalized the details of a bimodal cargo service designed to connect the salmon industry of Lake Llanquihue with the ports of the Biobío region, with operations expected to begin between November and December. Russia, meanwhile, lifted restrictions on five Chilean fishing plants — although four remain blocked — partially reopening a relevant export market for the sector.

On the energy front, the Ministry of Energy eliminated the September peak-hour electricity schedule for companies and SMEs, adopting a proposal from the Demócratas movement and easing production costs for sectors such as agriculture and metallurgy during their busiest period. The measure is modest in macroeconomic magnitude but politically significant as a gesture toward the private sector at a moment of tension. Minister Ximena Rincón also left open the discussion on smart meters and signaled that the government will seek a pact for a new electricity distribution law.

What comes in the next hours and days will focus market attention on several simultaneous fronts. SQM, whose shares trade on the Santiago Stock Exchange and ADRs on the NYSE, will publish its second-quarter results — analysts anticipate that sales more than doubled compared with the same period last year and that net profits grew 520% — figures that could reset the mood on the non-metallic mining sector at a moment of global weakness in lithium prices. The pensions superintendent must publish within the next two weeks the definitive regulation of the new AFP investment regime, amid pressure from the sector on critical aspects of the proposal. And the escalation in Hormuz, if it does not de-escalate, will continue to fuel currency volatility and pressure on fuel prices, further complicating the delicate balance between growth stimulus and fiscal discipline that the Kast government is trying to maintain.

**SQM (NYSE: SQM)** — The Chilean non-metallic miner will publish its second-quarter results after market close; analysts anticipate a 520% increase in net profits and more than a doubling of sales compared with the same period of 2025, in a context of recovering lithium volumes despite global pressure on the mineral's prices.

**AFP Provida (MetLife subsidiary)** — The pension fund administrator controlled by U.S. insurer MetLife sold its Ecuadorian subsidiary AFP Génesis in May to real estate firm Minutocorp for a net result of approximately $17 billion, an operation that was the main driver of a 27.9% increase in its first-half profits to $87 billion.

**Sonda (Santiago Stock Exchange: SONDA)** — The Fiscalía Nacional Económica approved without conditions the acquisition by MacOnline — a Sonda subsidiary — of Aufbau, an authorized distributor of Apple products, consolidating the Chilean technology group as the main controller of the brand's distribution in Chile after ruling out market concentration risks.