Chile's electricity demand contracts for first time this century amid stagnation signals

The Chilean economy faces an accumulation of signals today that, taken together, paint a more worrying picture than any of them suggests individually: growth near zero, electricity demand contracting for the first time this century, informal employment on the rise, and a rating agency that, despite maintaining investment grade, sharply cut its growth projection. The question is no longer whether Chile is going through an adverse cycle, but whether the available policy tools are adequate to reverse it.

Fitch Ratings this week confirmed Chile's sovereign rating at A-, but the headline masks a significant downward revision: the agency cut its growth projection for 2026 from 1.6% to just 0.7%. The figure matches the lower end of the Banco Central's range —between 0.25% and 0.75%— and cements what is already shaping up as the weakest expansion performance in two decades outside of external shocks. The only relative comfort Fitch offers is on the fiscal trajectory: it expects public debt to remain below 43% of GDP in 2026, preserving the credibility anchor that sustains Chile's risk spread relative to the rest of the region. Rodrigo Aravena, chief economist at Banco de Chile, describes the fiscal adjustment as "costly, but necessary" — a formulation that implicitly acknowledges that consolidating the public accounts has a price in terms of near-term activity.

That price is becoming visible in an indicator that had until now resisted cyclical turbulence: electricity consumption. According to data from consultancy energiE cited by Diario Financiero, electricity demand posted its first negative reading since the turn of the century in 2025, with a stagnation stretching over five years that is unprecedented in two decades of data. The Ministerio de Energía is working on three fronts to reverse the trend, though the lag between public policy and system response will hardly produce visible results before 2027. The signal is relevant because electricity consumption serves as a thermometer for industrial and construction activity; its contraction reinforces the reading of an economy that cannot regain cruising speed.

Against this backdrop, organized private sector groups are increasing pressure on labor and tax policy. SOFOFA presented an agenda of five reforms aimed at generating 500,000 formal jobs, whose centerpiece is the replacement of the current severance-for-years-of-service system with an individual account administered by the AFC, with a monthly contribution of 4.11% borne by the employer. The trade group argues that the current design raises the contingent cost of hiring, particularly penalizes female hiring, and fuels informality in high-turnover sectors. In parallel, the government of José Antonio Kast is advancing a redesign of the SME tax regime, keeping the 12.5% rate but introducing transition brackets toward the general regime to avoid the so-called "step" that today discourages small businesses from growing. Labor informality —hovering around 26.5% according to data compiled by La Tercera— is the knot both initiatives are trying to untie from different angles: one from the employer's cost structure, the other from the entrepreneur's tax incentives.

The tension between spending and state efficiency gained additional visibility this week when Housing Minister Iván Poduje publicly criticized Dipres for the bureaucratic hurdles that, in his view, slow the execution of his portfolio's budget. "Dipres is a bureaucracy. I have to ask permission every time I pave a road," he told Diario Financiero. The episode came as Dipres, in its second-quarter public finance report, published an inventory of overspending on public procurement by the previous government: 28 services accounted for 91.2% of CLP 10.615 billion in purchases from more expensive suppliers when cheaper alternatives were available under the framework agreement. Gendarmería tops the list with CLP 2.835 billion. The paradox is that the same apparatus accused of being opaque in its spending controls is simultaneously flagged as excessively rigid in authorizing that spending.

Where the Chilean economy is showing traction is in the agricultural export sector. Chilean fruit closed the September 2025–August 2026 season with shipments exceeding three million tons for the second consecutive year, a 6.8% increase that defies the global tariff environment and cements the United States as the leading destination market. The result is particularly notable given the trade tensions that marked the period, and suggests that diversification of destinations and varieties has endowed the sector with greater resilience than expected in the face of external trade policy shocks.

On the water infrastructure front, a survey by Acades and the Corporación de Bienes de Capital shows that 53 desalination projects are in engineering or construction stages, with total investment of USD 23.913 billion. Fifteen plants will complete construction during the current Kast administration and another twelve will begin operations. The figure is substantial: it would roughly double the current installed capacity of 18,681 liters per second and represents a structural bet on decoupling economic growth —particularly in mining— from access to continental water, whose availability is diminishing as climate change advances in the northern regions.

The week closes with the Federal Reserve as backdrop: the U.S. central bank raised its benchmark rate by 25 basis points, a decision that tightens global financial conditions at a moment when Chile cannot afford further deterioration in the cost of capital. The Chile Day held in Madrid and London —the most well-attended in its history according to Diario Financiero— offered a window to project the narrative of institutional and fiscal stability to international investors, but Fitch's rating action and the growth data served as a reminder that the narrative needs backing from more convincing numbers.

What deserves watching in the coming weeks is the negotiation of the 2027 Budget —whose suspense is already installed, according to Minister Poduje himself— and whether the executive manages to translate SOFOFA's proposals and the SME reform into concrete legislation before the electoral cycle absorbs the agenda. The evolution of the exchange rate and the impact of the Fed's hike on the financing cost of local companies also warrant close monitoring. If electricity demand shows no signs of recovery by late 2026, the debate over the underlying diagnosis of the Chilean economy will become impossible to postpone.

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