(27 August 2008) In spite of the deteriorating international economic scenario, this year Latin America and the Caribbean will complete six consecutive years of growth, with Gross Domestic Product (GDP) rising 4.7%.
This is one of the conclusions of the Economic Survey of Latin America and the Caribbean 2007-2008, Macroeconomic policy and volatility, presented this morning by Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC). Although growth in 2008 will be lower than the 5.7% in 2007, GDP per capita will rise over 3% in the region for the fifth consecutive year. This has not occurred in the economic history of Latin America and the Caribbean for 40 years.
Until 2007, regional growth was propped up by a favorable external context, with greater demand -particularly by China and India- for export products from the region. Terms of trade increased in nearly 33% last year, with regard to the average during the 1990's, although with differences in the subregions of Latin America and the Caribbean. The subregion that most benefited from this rise was South America, while Central American nations were the least favored, being net oil importers.
Consistent with the results of the economic activity in the region, the ECLAC report highlights the significant improvement in labour market indicators. Unemployment rates have fallen gradually since 2003, reaching 8% in 2007, with an estimated 7.5% in 2008.
Poverty in the region also continued going down, having dropped over 9% since 2002, says the Economic Survey 2007-2008. This is due to economic growth, lower unemployment, and better quality jobs, as well as increasing nonwage income, such as remittances and conditioned transfer programmes. However, poverty rates continue higher than in the early 1980's, with over 35% of the population -190 million people- living under the poverty line.
The volatility that has characterized financial markets since mid last year, and growing international uncertainty will have a negative impact on world growth. Economies in the region will not be the exception, although ECLAC expects they will not suffer the effects as deeply as in the past, given their greater economic strength.
This strength is due to, in the first place, greater fiscal solvency, with fiscal income rising above spending. In 2007, governments in the region had a primary surplus (including interest payments) of 2.3% of GDP (2.1% in 2006) and a global surplus of 0.3% of GDP (-0.2% in 2006). This has allowed governments to allocate greater resources to public investment and social spending, while accumulating resources and designing anti-cyclical instruments to face potentially unfavourable economic scenarios in the future.
Second, economies in the region have significantly reduced their public debt and have negotiated debts in better conditions (longer periods and more advantageous conditions). Public debt continued decreasing, falling from 36% of GDP in 2006 to 33% of GDP last year.
Third, during this period of growth, current accounts boasted a significant positive balance. In 2007, in spite of the deceleration, the current account surplus was US$18.5 billion, equivalent to 0.5% of regional GDP. Lastly, as of May this year, international reserves reached 13.4% of GDP in Latin America, and 17.4% in the Caribbean.
Risks and perspectives for the region
The region faces certain risks in the future. The main one is rising inflation rates, which in 2007 reverted its fall since 2002, and reached 6.5% (up from 5% in 2006). This reflects the rising food and oil prices in international markets since the second semester of last year. Increasing inflation has led central banks to mark up interest rates, which may make regional GDP contract.
Secondly, a deepening deceleration of the United States economy will affect especially Central America and Mexico, whose exports, particularly manufactured exports, are concentrated in that market. The economic situation in the United States could also impact the labour market, causing remittances from immigrant workers to their home countries to drop.
Lastly, the deceleration of developed economies could lower demand for primary goods and lead to a fall in their international prices, although ECLAC believes they will remain high with regard to 2003 prices, mainly in South America.
In spite of these risks, ECLAC underscores the positive regional growth figures for 2008. As in recent years, South America will grow more than Mexico, Central America and the Caribbean. Although the risks mentioned would have a moderate impact in 2008, economic deceleration will likely continue for some time, with which growth rates for Latin America and the Caribbean could reach approximately 4% in 2009.
** See chart attached. Latin America and the Caribbean: GDP growth per country (2004-2009)**
See also:
The Economic Survey of Latin America and the Caribbean 2007-2008 and Executive Secretary Alicia Bárcena's presentation will be available in Spanish on the ECLAC website (http://www.eclac.cl/ or http://www.eclac.org/ ) as of 12 p.m. in Chile (4 p.m. GMT) on August 27. An English version of the executive summary, the regional panorama (chapter 1 of the Survey) and the statistical annex may also be downloaded from the website. The final printed version of the Economic Survey may be requested as of October for the Spanish version, and as of November for the English version. For further information, contact ECLAC's Information Services. Email: dpisantiago cepal.org; telephones: (56-2) 210-2380/2149. |
