Unemployment hits 10-year high as Chile freezes budget spending

Chile's economy faces today a contradiction that no budget speech can disguise: unemployment among Chileans reached 10% in the June-August quarter, its highest level since 2021, with 81,000 jobs destroyed in the second consecutive month of net losses, and yet President José Antonio Kast's government has unveiled a 2027 Budget with spending growth of just 1.5%, while academics and the private sector itself rule out additional fiscal stimulus. This is the central tension defining the country's economic mood today: a deepening employment crisis, and a fiscal framework that has neither the space — nor the political will — to cushion the blow.

Finance Minister Jorge Quiroz himself acknowledged this week that "the damage to the economy, and particularly to the mining sector, is deeper than I had thought," words that carry weight given that mining is the country's main engine of foreign exchange earnings. Even so, Quiroz remains confident that the final quarter of the year will close in positive territory and that in 2026 Chile will grow above 3%, insisting that "there is nothing that can replace private-sector dynamism in terms of growth." It is a diagnosis that shifts the burden of recovery onto the business community at a moment when private investment has failed to deliver the expected dynamism.

The UC Panel explicitly ruled out the option of a temporary spending increase that would breach the fiscal rule, and professor Andrea Repetto noted that the budget as presented does not contradict the government's fiscal consolidation plan. Former Budget Director Matías Acevedo defended the 1.5% expansion and anticipated that the legislative debate will ultimately center on employment — precisely the government's most vulnerable flank. The opposition is already demanding explanations about the parameters used to calculate that figure, and the secrecy with which the Finance Ministry handled the release of information — Minister Quiroz arrived at Congress with a briefcase sealed with padlocks — drew criticism even from within the ruling coalition itself.

The sharpest political flashpoint is the elimination of the "Yo Elijo mi PC" program, which benefited more than 96,000 students. The move triggered a cross-partisan backlash: opposition and Partido de la Gente lawmakers sent a formal letter to the Education and Finance ministries describing the decision as "a step backward on equity," while Deputy Gael Yeomans, president of Frente Amplio, warned that her party will oppose the cut. The mayor of Peñalolén announced that the municipality will absorb the cost locally. In a context where automation and artificial intelligence are already generating measurable workplace stress — an Achs-UC study documented deteriorating mental health among workers linked to technological advances — the image of eliminating school computers is politically costly for a government that needs to build credibility around employment.

On that front, the Chile Despega Plan, which proposes creating 100,000 jobs before 2027, faces skepticism. Claudia Martínez, director of the UC Institute of Economics, warns of the diminishing capacity to generate jobs per point of growth, a structural trend that makes it harder to translate GDP expansion into job creation. SOFOFA, for its part, presented an agenda of five labor reforms — among them severance pay for all cases, universal daycare and greater workday flexibility — and held the second seminar of its "Trabajo 3×3" series, where the association's president, Rosario Navarro, argued that "flexibility and precariousness are not the same thing." The participating union federations showed conditional openness to reviewing changes to the workday, suggesting there is room to negotiate — but political time is short.

In markets, the week closed with marginal relief: the IPSA managed to break a six-session losing streak after weak U.S. employment data, though in weekly terms it fell 3%, and adjusted for the exchange rate the index has accumulated eight sessions and six weeks in the red, with a 5.9% decline once the peso's deterioration is factored in. The Cadem poll adds political pressure to the picture: President Kast's disapproval reached 63%, his highest level since taking office in March, and 42% of respondents identified job creation and economic growth as their most urgent personal priority.

On the energy and supply front, the government faces another underlying challenge: the business sector has raised alarms about the fragility of the electrical grid, with concerns now reaching the Kimal-Lo Aguirre mega-transmission line project, one of the pillars of the country's energy transition. The Coordinador Eléctrico will publish a system robustness study in February. In parallel, Energy Minister Ximena Rincón will lead a mission to Saudi Arabia together with ENAP to diversify diesel supply and reduce dependence on the United States, a signal that Chile is actively moving to align its energy policy with the new global geopolitics of supply. On the trade front, SOFOFA marked the 20th anniversary of the FTA with China — Chile's top trading partner, with exchanges exceeding US$67 billion in 2025 — and is preparing a high-level business mission to Beijing in November for the APEC CEO Summit 2026, a reminder that market diversification remains the long-term strategic bet of the Chilean private sector.

What remains decisive in the coming weeks is the budget debate in Congress, which promises to be tense: the government will have to defend unpopular cuts with disapproval at record highs, while pressure to expand the employment plan will build from every flank. Any sign of further deterioration in fourth-quarter activity data could reignite the debate over the fiscal rule — a debate that is closed in theory today, but one that politics has a habit of reopening.