Delays, postponements and cancellations have also been attributed by industry participants to domestic problems related to water shortages and high energy costs, to excessive delay in the definition of projects and legal issues with some of them, as well as to problems with communities and increased costs. Among the factors behind the deceleration, there is also the fact that reconstruction works after the earthquake and tsunami of February 2010, including the associated fiscal boost, have tended to recede as the process is completed, explaining also part of the economic slowdown. Last, but not least, in the past few years, these and other factors have pushed economic growth above its potential. This made it necessary and appropriate to pursue a slower pace of growth, more sustainable over time. Overall, output and expenditure have weakened beyond expectations, taking us and all economic agents by surprise for the intensity and persistence of the slowdown. Already in last June’s Report we said that part of the drop in investment could not be attributed to the variables that traditionally determine this component of domestic demand. The negative surprise in output has to do with some of the developments that we envisioned a few months ago contributing less to growth than we thought then. For example, the economic recovery of our main trading partners has been somewhat slower than expected, especially in Latin America. Downward corrections to mining and energy investment projects planned for 2014 have been sharper than estimated, as reflected in the latest survey of the Capital Goods Corporation.

Meanwhile, although a weaker domestic economy could amplify capacity gaps and ease inflationary pressures, we cannot rule out that its effects on the exchange rate may offset the price effects, at least temporarily, thus delaying the convergence of inflation. Let me now share with you some concluding thoughts. Final thoughts Domestic output and demand have been weaker, and more persistently so, than we expected a few months back. The sharper fall in investment coupled with a more marked deceleration of private consumption, so we lowered our growth forecast for this year below the range we projected in June. Annual inflation, on the contrary, has been in line with expectations and we continue to see its present high level as temporary. As from June, the Bank has cut the monetary policy rate by 50 basis points, taking it to 3.5 percent, and has reiterated that it will consider the possibility of making further reductions to the MPR in line with the evolution of domestic and external macroeconomic conditions and its implications on the inflationary outlook. No doubt the results and projections presented today show a weak performance of the Chilean economy. We have made significant corrections to our output forecast that respond to the combination of external and internal factors, some of them foreseen, some unexpected. Within the latter, it is obvious that the widespread deterioration of private sector expectations has played a major role. The true magnitude of such role is difficult to determine, but it is certainly big, particularly when it comes to projections.