| | |  Business News | October 2008 
Latin America Economy: Mixed Outlook
 Latin Business Chronicle
go to original
| | ANOTHER GOOD YEAR: Brazil - here represented by the famous Crist the Redeemer statue in Rio de Janeiro - is slated to see another good year despite the U.S. crisis and growing financial turmoil. (Embratur) | | |
Latin America's economy and trade will hold up this year, but will weaken next year.
Despite the Wall Street meltdown, Latin America's overall economic growth remains largely on track, according to new projections from the International Monetary Fund. Brazil, the region's largest economy, should grow by 5.2 percent this year.
Meanwhile, U.S. trade with Latin America continues to grow in double digits, although August marked a slower pace than July, according to a Latin Business Chronicle analysis of US Census Bureau data released last week. Mexican exports to the U.S. market have especially slowed down, indicating the start of a negative cycle.
But U.S. trade with Latin America may also be hurt by a stronger dollar (making U.S. exports to the region more expensive) and reduced prices on key Latin American commodities, warns Isaac Cohen, president of U.S.-based consultancy Inverway and a former director of the Washington office of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).
"As long as the strength of the U.S. dollar continues, it will make U.S. exports more expensive and therefore less competitive, while the prices of commodities exported by Latin America will continue falling, while the recession in the United States reduces the demand for commodities," he says. "This is hardly an encouraging scenario for trade relations between the United States and Latin America. By contrast, dollar weakness will help U.S. exports and push commodity prices upwards."
GDP GROWTH
In its latest World Economic Outlook released last week the fund estimated that Latin America's GDP would expand by 4.6 percent this year. That's slightly better than the 4.4 percent the fund had predicted in its previous World Economic Outlook in April. However, for 2009 the fund revised down its forecast - from 3.6 percent to 3.2 percent, which is also a relative minor change.
Despite the slight revision next year, Latin America remains one of the leading growth areas in the world. The growth rate this year, for example, is significantly higher than the United States (1.6 percent), the Euro area (1.8 percent) and Japan (0.7 percent). Even next year's rate of 3.2 percent will beat the IMF's forecasts for the United States (0.1 percent), the Euro area (0.2 percent) and Japan (0.5 percent).
Brazil is set to grow by 5.2 percent this year and 3.5 next year, the fund says. Previously it ha predicted growth of 4.8 percent and 3.7 percent. Mexico's economy, the region’s second-largest, will expand by 2.1 percent this year and 1.8 percent next year, the IMF says. That compares with the 2.0 percent and 2.3 percent the fund had predicted in April. However, that means that Mexico will have the lowest growth in 2008 and 2009, according to a Latin Business Chronicle analysis of the new IMF projections.
Peru, Latin America's seventh-largest economy, will see the strongest growth this year - 9.2 percent. Next year, its economy should expand by another 7.0 percent, which will be the second-highest growth in the region. Panama, the 13th-largest economy, is expected to post the second-highest growth this year - 8.3 percent - and the highest next year - 7.8 percent, the fund says.
Apart from Peru and Panama, other growth winners this year include Argentina and Uruguay (6.5 percent each), Venezuela (6.0 percent), Bolivia (5.9 percent) and Paraguay (5.5 percent). Apart from Mexico, the growth laggards this year include Haiti (2.5 percent) and Ecuador, El Salvador and Nicaragua (3.0 percent each).
Meanwhile, inflation in Latin America is likely to reach 7.9 percent this year, the IMF estimates. That's an increase from the 5.4 percent rate of last year and will be the worst performance in five years.
Venezuela's inflation will likely reach 27.2 percent, the IMF estimates. That's not only the highest in Latin America, but also the third-highest worldwide after Zimbabwe and Myanmar, according to a Latin Business Chronicle analysis of IMF estimates. Venezuela's rate will share the third place with the Seychelles (also 27.2 percent), but beat countries like Iran and Mongolia (26.0 percent each) and São Tomé and Príncipe (25.9 percent). Next year, Venezuela is expected to beat Myanmar and end up in second place behind Zimbabwe, according to our analysis.
US-LATIN TRADE GROWS
U.S. trade with Latin America reached a total of $434.7 billion in the first eight months this year, according to the U.S. Census Bureau. That represents an increase of 19.7 percent from the same period last year. U.S. exports grew by 22.9 percent to $183.7 billion, while imports from Latin America grew by $17.4 percent to $251.0 billion.
The strong growth was driven by trade with Venezuela and Brazil, the second- and third-largest U.S. partners in Latin America. Trade with Mexico, the top U.S. partner in the region, grew at lower levels.
U.S. trade with Mexico grew by 10.1 percent to $250.1 billion in the first eight months this year. By comparison, U.S. trade with Venezuela grew by 49.5 percent and with Brazil by 30.1 percent. However, the dynamics of those increases differ. While Venezuela's trade growth is largely due to a 59.4 percent increase in its exports to the United States (mainly of oil), the growth with Brazil is due to a 40.9 percent increase in U.S. exports to that country.
Meanwhile, Mexican exports to the United States are starting to see the impact of the U.S. crisis. Mexican exports to the United States in August grew by a mere 2.6 percent. That compares with a 14.0 percent increase in July and 8.6 percent during the first half, according to the Latin Business Chronicle analysis. |
|
| |
Vallarta Weddings
Tell a Friend
Site Map
Print this Page
Email Us