Most Latin American countries will see growth this year but economies are likely to slow in 2011 as they face a number of challenges including more fixed capital investment to improve competition, greater added value to exported goods and services, and tax reforms to finance social policies, according to a new report.
An average expansion of around 5.2% is expected this year, according to the report from Economic Commission for Latin America and the Caribbean (ECLAC), a United Nations regional agency. But for 2011 its forecast is just 3.9% for Latin America and the Caribbean.
The leader in growth this year is Brazil, with a projected GDP expansion of 7.6%, followed by Uruguay and Paraguay at 7%, Argentina at 6.8% and Peru at 6.7%.
Next in the rankings comes the Dominican Republic at 6%, Panama at 5%, Bolivia at 4.5%, Chile at 4.3%, Mexico at 4.1%, Colombia at 3.7%, Ecuador and Honduras on 2.5% and Nicaragua and Guatemala on 2%.
In contrast, Venezuela’s GDP will shrink 3%, due in part to a decline in petroleum exports, which fell 30.4% in 2009, and to the rationing of electricity suffered by that country, the report says.
Haiti’s economy will see a sharp decline of up to 8.5% as a result of the January earthquake in Port au Prince, although in 2011 the Caribbean nation is expected to lead the region, with 7% growth, thanks to broad reconstruction efforts. Chile, also affected by an earthquake as well as a tsunami in February, will also see significant growth in 2011 with a prediction of 6% growth.
‘This year we are going to grow well, but next year the growth rate will be lower and the outlook for the future is quite uncertain,’ said Osvaldo Kacef, director of the economic development division of ECLAC.
He added that it is possible that ‘the future growth rates won’t be enough for the labour markets to absorb the workforce necessary for it to improve the social situation’.
The uncertainty arising from the crisis in the European Union is forcing countries in the region to maintain their macroeconomic balance, but without disincentivising competition, fixed capital investment, or exports of goods and services with greater added value, he explained. ‘The region has a deficit of fixed capital investment, particularly in infrastructure, machinery, and roads,’ he said.
‘Sometimes political leaders put too much emphasis on controlling inflation, and the exchange rate is left as a residual variable. The real exchange rate affects the designation of resources in the long term,’ Kacef added.
The report also shows that the overall GDP of Latin America and the Caribbean shrank 1.9% last year as a result of the global economic crisis. In 2008, most of Latin America’s export goods went to the United States (40.7%), followed by Europe (13.9%), China (4.8%) and Japan (2.2%). In regional terms, it means Latin America and the Caribbean are more exposed to fluctuations in the US markets than other export destinations, according to ECLAC.
The report suggests that South America is more vulnerable to the EU crisis, particularly Argentina, Chile, Peru and Uruguay, because in those countries the estimated weight of exports to the EU is greater or equal to 4% of GDP.
Emerging markets in Asia are likely to become more important for the region as Asian demand for the region’s metal and grain exports increases and access to credit improves, the report concludes.
The Central America and the Caribbean won’t benefit from the commodities boom as they are net importers of food, fuel, metals and minerals.
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I can only say that I am happy to know my country ( Brazil ) is growing and is even ahead some other countries in south america. We hope to become a big nation like the US one day, and we´ve worked hard to make this dream come true.