Earthquake to drag on Chile's crisis recovery

A devastating earthquake in Chile will set back the country's recovery from recession and put pressure on central bankers to keep interest rates low to help the economy.

Saturday's 8.8-magnitude quake tore up highways and bridges, knocked out power that feeds mines and factories, and shook apart scores of buildings, killing more than 400 people.

With details of the extent of the destruction still emerging, economists said it was hard to estimate the degree to which Latin America's most advanced economy would be set back.

The damage could cost Chile up to $30 billion (Dh110bn), equivalent to roughly 15 per cent of gross domestic product, said Eqecat, a firm that helps insurers model catastrophe risks.

The quake has also shaken President-elect Sebastian Pinera's pledge to boost economic growth just before his center-right government is sworn in, ending 20 years of leftist rule.

"There will be a widespread and deep impact on Chile's economy," said Nick Chamie, who heads research on emerging markets at RBC Capital Markets in Toronto.

Chamie and other analysts said Chile's peso could weaken, perhaps sharply, on the news. "We would play the Chilean peso short," Ideaglobal said. At the same time, the country's biggest copper mines, which are important economic drivers, were mostly spared by the disaster and officials said copper exports would not be affected. Chile produces a third of the world's copper.

The country's relatively good construction standards also helped it resist the quake, which was one of the world's strongest in the past 100 years.

"The direct economic impact of the earthquake (could) be limited," said Pimco portfolio manager Curtis Mewbourne, based in Newport Beach.

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