Monday, March 1, 2010
Chilean Stocks Post World's Biggest Drop as Quake Closes Roads
In response to the devastating 8.8 magnitude earthquake that struck Chile over the weekend, Chile stocks fell the most in almost a month, the biggest drop among the world's 50 largest markets. Due to the severe damage to Chile's infrastructure, especially power lines, it has halted many of Chile's manufacturing sectors. For example mining operations of Copper (Chile is the world's largest producer) were completely halted. The total economic impact may be as much as $30 billion, or about 15% of the South American country's GDP. However, Chile's $11.3 billion saving funds should provide the nation with some stability as it attempts to rebuild and recover from this earthquake, which was the world's fifth strongest since 1900.
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Unfortunately we cannot control natural disaster so things like this do happen. It makes complete sense that the Chilean economy will take a hit and it will slow down until fully recovered from the incident. Chile is the largest producer of copper and the fact that its mining wont be as productive as it has been before for a while means not only that the Chilean economy will slow down but also other economies in the world that engaged in trade with Chile with the purpose of using copper in the making of finalized goods.
ReplyDeleteThe article also states that Chile will use overseas funds to finance reconstruction projects. The copper revenue will be a resource that will help rebuild and offset the loss in exports. Of all the Latin American countries Chile has the highest debt and is the best suited to handle the spending needed after a natural disaster. Since the earthquake disrupted growth for the next two quarters, the central bank of Chile will most likely hold off on increasing interest rates. Chile has a relatively high savings fund that can be utilized in the rebuilding effort, and because of this it will be able to maintain this ‘rapid pace’ reconstruction and sustain growth.
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