Copper Mining Collapses to 23-Year Low as Chile Enters Recession

In six of the first seven months of the year, the Chilean economy has posted a contraction. July's reading — a 1.5% Imacec decline according to the Banco Central — is not merely another data point in an adverse streak: it lands precisely as the government had declared a turning point, and it does so with a sectoral brutality that lays bare the structural fissures of Chile's productive model. Copper mining, the backbone of exports and public finances, contracted 9.3% in July, hit by lower ore grades, scheduled maintenance and adverse weather conditions that also weighed on industry and education services. The upshot is that mining output has fallen to its lowest level in 23 years, and the leading operators — BHP, Lundin and Antofagasta Minerals — have trimmed their extraction forecasts for the year, anticipating a decline of at least 3% versus 2025.

The official reaction was telling. Finance Minister Jorge Quiroz acknowledged to the press that the 2026 growth projection, currently at 1.8%, will be revised downward in the next Public Finance Report in October, though he insisted that medium-term prospects remain intact. "We're better off looking at things through a telescope," Quiroz said, invoking positive signals from investment and business expectations. Former minister Mario Marcel, by contrast, was more blunt: he called the print "very negative, negative across the board" and argued that Quiroz "is going to have to wait a bit longer before he can see an actual turning point," questioning the reinterpretation of the June data that the government had celebrated with premature enthusiasm. Market analysts have begun to trim their annual GDP estimates to figures close to 0.4%, and some warn that the third quarter could again print negative, which would technically configure a sustained rather than cyclical recession.

The scale of the confidence crisis compounds the picture. According to Ipsos's Consumer Confidence Index for August, Chile posted the largest year-on-year drop among the 30 economies measured globally, ranking 29th with just 38.1 points, ahead only of Turkey. It is the lowest level since February 2023 and places the country nearly ten points below the Latin American average of 47.9 points, at a time when Peru, Brazil and Mexico are showing positive or stable readings. The current economic situation sub-index fell to 28.1 units, well below the 50-point equilibrium threshold.

Against that backdrop, the government has simultaneously launched an economic policy offensive that seeks to offset cyclical weakness with structural medium-term signals. The Finance Ministry this week clarified a key point of tax invariability: contracts signed today at the 27% corporate rate will automatically incorporate the gradual reduction to 23%, preventing investors from postponing decisions until 2029. The measure is aimed squarely at unlocking investment projects whose activation hinged on legal certainty over the tax trajectory. SOFOFA, which has estimated that the four-percentage-point cut in the first-category tax could generate between 80,000 and 210,000 jobs over four years, backed the approach while pressing for faster implementation.

The capital markets reform, whose submission to Congress is scheduled for next week, adds another layer to the reactivation package. BancoEstado will administer a mortgage portfolio buyback fund whose amount has yet to be defined, though Quiroz anticipated that "the figure has to be enough to move the needle." The bill also includes a subsidy for down-payment savings on mortgage loans, in a context where the transitional mortgage rate subsidy program has already accumulated more than 101,000 eligible applications, of which roughly 30,400 have been effectively processed. Colliers estimates that the housing-focused package could reduce monthly mortgage payments in the sector by up to 35%, though executive director Jaime Ugarte called it "probably the most comprehensive effort of recent years."

The pensions market also received relevant signals. The Superintendency of Pensions published the definitive regime for the new generational funds, which will replace the current five multi-funds on April 1, 2027, grouping affiliates by birth cohort under a life-cycle logic with declining risk. The regulator eased the original proposal to allow AFPs to differentiate their investment strategies and increase exposure to alternative assets, incorporating part of the industry's feedback. In parallel, the labor market presents a paradox that OCEC UDP attributes to migratory shifts: unemployment among Chileans is approaching 10%, while that of foreign workers has fallen to 6.5%, a gap explained mainly by the shrinking of the Venezuelan labor force. A CEP study adds depth to the diagnosis: labor turnover is nearly 10% higher than before the pandemic, but net job creation has declined and flows have shifted toward self-employment and small firms.

Tensions in the mining sector are not merely statistical. Albemarle, a key lithium operator, requested mediation to avert a strike at its Chilean operations after workers approved a walkout with 97% support. The mediation suspends the start of the strike for five business days, but the situation reflects a hardening labor climate in a sector that should be a driver of recovery. In copper, Australia's Cobre Limited closed the acquisition of 62.86% of the Sierra Atacama project in the Antofagasta Region, injecting USD 12 million, in what amounts to a long-term bet on the red metal's fundamentals despite current operational performance.

In financial markets, the IPSA closed near 11,400 points, recovering from the previous session that had been affected by the MSCI index rebalancing, in a session that also marked the start of trading of the Chilean index under that provider and the inclusion of Pampa Investments. The peso posted a mild uptick against the dollar. Globally, U.S. 10-year Treasury yields reached 4.79%, highs since January 2025, driven by the military escalation in the Middle East that led U.S. Central Command to strike IRGC targets in Iran, sending crude prices higher and raising bets on further rate hikes by central banks. That international turbulence hit Wall Street, though Latin American exchanges, including Chile's, showed greater relative resilience.

First-half earnings from IPSA companies offer, in that context, a relevant counterpoint: aggregate profits grew 12.8% to USD 7.5 billion, with 17 of 29 companies improving their bottom line. SQM tops the ranking with earnings of USD 1,024.7 million, a 353.5% jump driven by lithium sales that tripled to USD 2,964.8 million. Corporate performance suggests there are pockets of strength in the Chilean economy, concentrated in sectors exposed to elevated commodity prices and external markets, while domestic demand remains depressed.

In the weeks ahead, the focal points will be the formal submission of the capital markets reform to Congress, the evolution of the Albemarle negotiations and their impact on lithium output, August activity data that will determine whether the third quarter confirms the negative trend, and the Federal Reserve's stance in the face of new inflationary pressure from oil. For Chile, the central question remains the same: whether the investment signals invoked by Minister Quiroz can materialize before the cyclical deterioration further erodes household and business confidence.