Chilean President Jose Antonio Kast has faced rising unemployment and weak economic activity during the six months of his term, File Photo by Javier Torres/EPA
SANTIAGO, Chile, Sept. 17 (UPI) -- Rising unemployment and weak economic activity have marked the first six months of Chilean President José Antonio Kast's administration, as the country's central bank lowered its growth outlook for this year.
Unemployment reached 9.5% in the May-July period, its highest level in five years, while the informal employment rate stood at 26.5%.
Weak economic growth has compounded the problems in the labor market. Chile's central bank lowered its 2026 gross domestic product growth forecast to a range of 0.25% to 0.75% and projected growth of no more than 3% in 2027. It also warned that economic weakness could persist longer than expected.
During his 2025 presidential campaign, Kast pledged to accelerate Chile's economic growth to 4% during his administration and make his government the country's biggest job creator in more than a decade, with a particular focus on employment for women and young people.
Kast acknowledged that the country faces a critical employment situation and instructed his ministers to develop an emergency jobs plan aimed at addressing unemployment and reviving the labor market.
The deterioration in economic indicators also has increased pressure on the government amid growing pessimism about the economy and its outlook and criticism over the lack of short-term measures to boost employment and economic activity.
Sebastián Gallegos, an economist and professor at the Adolfo Ibáñez University School of Business and a research fellow with the Inter-American Development Bank's Behavioral Economics Group, said Chile's situation goes beyond a temporary downturn.
"During the first part of the year, supply-side factors played a role, including lower mining production and weather-related effects, but they were later compounded by slowing domestic demand, deteriorating confidence and further weakening of the labor market," Gallegos told UPI.
The challenge is not only to create jobs but also to generate formal, stable employment with sufficient working hours.
"If the public debate takes hold of the idea that the economy will not recover, households may postpone consumption and companies may delay hiring and investment, deepening a weakness that initially could have been temporary. Recognizing the severity of the labor market situation does not require assuming that all indicators will continue to worsen," Gallegos said.
Although Gallegos said Chile is not yet experiencing a broad economic crisis, he described the current period as one of virtual stagnation, with significant social consequences and little room for economic policy mistakes.
He also said there is a "timing mismatch" between reforms pursued by the administration and the immediate needs of the labor market.
One example is a recent reform that cuts taxes on large companies and is expected to improve investment conditions, but whose effects on economic activity and employment could take time to materialize.
"The government has focused on the reconstruction bill and the capital markets bill to reactivate the economy, and that is not going to produce results in the short term," Ricardo Ruiz de Viñaspre, director of the business engineering program at Finis Terrae University, told UPI.
To improve economic indicators in the short term, Ruiz de Viñaspre said the government should strengthen infrastructure, housing and public works programs alongside employment subsidies.
"That could be accompanied by reforms to the labor code that encourage companies to create more formal jobs for Chileans. Spending cuts are also needed in other ministries and government services to finance the additional budget required for employment subsidies," he said.
Ruiz de Viñaspre expects labor market difficulties to continue in 2027 even if the unemployment rate declines.
"Economic weakness will persist in 2027," he said.
In his view, a more sustained recovery requires structural measures, including changes in how working hours are distributed and hourly contracts that could boost employment-intensive sectors such as retail and tourism.
The economic deterioration is also having political consequences for the government. According to the latest Cadem poll, the administration received a score of 3.4 on a scale of 1 to 7, with 7 being the highest. The survey found that 64% of respondents disapproved of Kast's performance while 34% approved.
Roberto Méndez, a public opinion expert, said part of the decline reflects expectations generated at the beginning of the administration that have contrasted with the economy's subsequent deterioration.
"Kast bears responsibility for the pessimism because at the beginning of the government there were a lot of expectations, and that turned into disappointment," Méndez told Radio Pauta.
He welcomed the government's acknowledgment of the urgency of the employment situation and its effort to find measures capable of creating jobs this year, but warned that announcements alone would no longer be enough to restore public confidence.
"Promises are no longer useful. What is going to work now are concrete actions," he said.
Ruiz de Viñaspre agreed, saying the administration should have acted earlier in response to weak growth and a deteriorating labor market.
"Now the problem has hit us head-on. It was thought that tax and labor measures adopted by previous administrations, such as the minimum wage increase or the reduction in the workweek, would not have an effect, but they did," he said.