Latin America Springs Forward

Latin American economies appear to be waving goodbye to the global financial crisis and welcoming recovery. The World Bank and International Monetary Fund (IMF) released reports this week predicting regional growth will hit at least 4 percent in 2010. With recovery occurring faster than previously predicted and emerging markets leading the charge, Latin America’s rebound ranks second only to Asia’s. Still, challenges remain, such as increased poverty rates stemming from the recent downturn and worries about future asset bubbles similar to those experienced in advanced economies.

Countries at the top of the rebound include Brazil, Chile, Mexico, Panama, Peru, and Uruguay. The World Bank report forecasts that Brazil will lead the pack with 5.5 percent growth. The IMF report offers a similar figure for Brazil, crediting growth to “strong private consumption and investment.” Yet it places Peru’s growth even higher, forecasting 6.25 percent GDP growth in 2010 “thanks to favorable internal dynamics and high commodity prices.” The report finds that, in spite of February’s earthquake, Chile’s growth rate is expected to reach 4.7 percent in 2010 and 6.0 percent next year. Mexico, which experienced a contraction in 2009, can also expect to see growth of 4.25 percent this year in tandem with the recovery of the U.S. economy. The IMF forecasts that Uruguay growth will run at 5.7 percent.

Panama will lead Central America this year with GDP growth projected to hit 5 percent. Although Central America’s average growth rate will fall below Latin America’s, current IMF projections of 2.7 percent are nearly a percentage point higher than they were six months ago. Argentina, Colombia, Bolivia, and Paraguay will also experience growth below—but in many cases close to—Latin America’s average. MercoPress reports that Venezuela is the only country for which negative growth has been projected, with a contraction of 2.6 percent predicted, in part due to the country’s ongoing electricity shortages. The World Bank places the figure closer to 2 percent and links the shrinkage to falling private investment and production.

The World Bank attributes the generally good news for the region to solid macroeconomic and monetary policies, growing integration in global markets, as well as what the Bank’s regional chief economist Augusto de la Torre calls the “China connection,” or closer economic ties between certain Latin American economies and China. A recent report by the UN Economic Commission for Latin America and the Caribbean finds that China will likely overtake the European Union as Latin America’s second largest export market by 2015.

Despite positive signs in the region as a whole, areas of risk exist. Notably, progress on poverty reduction took a step backwards. Although some 60 million Latin Americans emerged from poverty between 2002 and 2008, the financial crisis led to as many as 10 million people falling back into poverty last year. The region also experienced the loss of 3.5 million jobs last year.

Learn more:

• IMF’s World Economic Outlook: “Rebalancing Growth,” April 2010.
• World Bank report: “From Global Collapse to Recovery: Economic Adjustment and Growth Prospects in Latin America and the Caribbean,” April 21, 2010.
• The Economist explores how emerging economies are accounting for an increasing share of global GDP growth.