Growth in Latin America and the Caribbean Is Projected to Be 1.9% in 2009
As a result of the international financial crisis, unemployment in the region is also expected to rise.
(18 December 2008) ECLAC projects growth in Latin American and the Caribbean in 2009 at 1.9%, with the unemployment rate increasing from 7.5% in 2008 to 7.8%-8.1% next year, as a consequence of the international crisis.
Between 2003 and 2008, market labour indicators also improved and poverty decreased. In a favorable external context, almost all countries in the region gave priority to achieving macroeconomic balance, with surpluses in external and fiscal accounts. Today, the region is better prepared than in previous occasions to handle a crisis, but in no case is it immune.
The situation of Latin America and Caribbean economies in 2008 is akin to "flying like a glider", supported by the impulse of previous years. The motors of growth were turned off and it is uncertain when they will be turned on again, or how the landing will be.
Informal employment is expected to rise and inflation will decrease significantly, from 8.5% this year to approximately 6% in 2009, says the report.
Effects of the crisis
According to ECLAC, the international crisis is impacting Latin America and the Caribbean through two main channels: the real and financial ones.
In the real economy, exports are already decreasing, especially in countries most linked to developed economies in recession, such as Mexico and some Central American nations. The drop in the price of basic products, particularly fuel, metals, and food, will affect the terms of trade in the region, which, although they continued to improve during 2008, are expected to worsen in 2009.
Another effect is the reduction of remittances from migrant workers, which provide significant income to some Caribbean and Central American economies. Moreover, falling demand for tourism services will further hamper these countries' levels of income.
Lastly, foreign direct investment flows are also expected to decline.
As for the financial channel, external financing, both for private companies as well as for sovereign debts, has become more expensive, and availability of credit has been severely restricted. Both effects have already led to a strong depreciation of local currencies in several countries, which, although positive in terms of competitiveness, also upsets the balance sheets of those indebted in dollars and restrains inflation from lowering further.
The crisis may have a negative impact on income distribution, given that the rise in unemployment and informal labour will especially affect low-income households and those headed by women, says ECLAC in its Preliminary Overview report.
The depth and length of the crisis are still uncertain and depend on the effectiveness of measures taken to stimulate demand and the normalization of credit markets in developed economies.
To address global problems, coordinated solutions are required, says ECLAC. Stimulating demand must not only come from developed countries, but also developing ones, and this requires greater integration and coordination of macroeconomic policies in the region. For many countries, it is vital to count with adequate resources provided by international agencies in order to finance the implementation of countercyclical policies.
Additionally, intraregional trade and integration -understood in its broadest sense- should be fomented. ECLAC believes important to advance towards the establishment of a new international financial architecture and a more active role of regional financial bodies, which should provide the liquidity needed to finance these efforts.