Again, the outlook for emerging economies has continued to deteriorate. Despite a very recent increase, the prices of commodities-especially oil-are below their levels of recent years, affecting net exporting countries. Meanwhile, the growth prospects for China, Russia, and particularly Latin America are also declining motivated by idiosyncratic elements. Therefore, there is the risk that, beyond the real channel, commercial links and direct investments by Chilean companies, one cannot rule out financial contagion episodes in the prices of some assets, such as the exchange rate and sovereign spreads. Internally, the note of caution of previous Reports with respect to the situation of the corporate sector is maintained. Indebtedness as a percentage of GDP reached 114 at the end of 2014. This increase came mainly from a higher external debt and the peso depreciation (figure 9). Financial strength indicators of the companies reporting to the SVS are similar to those described in previous Reports, but low compared with historical averages (figure 10). This reflects a loss in the sector’s resilience to the possibility of a less favorable macroeconomic environment. Finally, some bank payment indicators have also deteriorated, with varying effects across banks, but especially affecting medium-sized ones. Activity in the residential housing market remains strong, with prices still on the rise. The moderation of production costs and anticipated purchases facing the upcoming enactment of the tax reform could be behind the sustained dynamic of the residential sector; meanwhile, price indicators continue to grow, although some moderation is observed in specific areas.

Output and demand are posting moderate annual growth rates, but still with some improvement over the second half of last year. This is good news. However, marginal data show some loss of strength which, combined with low confidence indicators for firms and households, leads us to estimate that the recovery foreseen for the second half of this year will proceed at a slower pace. Accordingly, we have adjusted our growth forecast for this year downward, by one fourth of a point. Inflation has moderated but is still high and thus it is our main worry. In our baseline scenario, we have it around 4 percent for some months to later descend toward our 3 percent target. About the risks facing financial stability, the Report shows no big changes either. Corporate borrowing continued to rise in the past few quarters. Although there are obvious factors behind this trend, such as increased external borrowing-a logical development given the good credit conditions-and the depreciation of the peso, we must not relent in our efforts to closely monitor these tendencies. Anyway, figures also show that the households’ and firms’ financial burden has not increased, largely because interest rates are low, in line with our clearly expansionary monetary policy. The external scenario has also behaved as we outlined in March. The recovery of developed economies looks more balanced across countries, boosting confidence in consolidated growth of the developed world. Emerging markets continue to show some further weakening, especially in our region.