Latin America and the Caribbean Maintain Positive Economic Scenario in 2005
The region will grow around 4.4% this year, despite the slowdown expected in the world economy.
(20 April 2005) The economy of Latin America and the Caribbean will grow around 4.4% in 2005, reaffirming a relatively positive regional scenario, despite the slowdown expected in the world economy. An ECLAC report projects growth rates of 6% or more for Argentina, Chile, Uruguay and Venezuela.
For the Southern Cone, ECLAC projects growth rates of over 6%; 4.4% for the Andean Community; 4% for Brazil, 3.7% for Mexico and Central America; and around 4% for the Caribbean, according to the report América Latina y el Caribe: proyecciones 2005 (Latin America and the Caribbean: Projections 2005), N°32, in the Estudios estadísticos y prospectivos series.
The lower growth rate than in 2004 (5.8%) reflects the slowdown in the world economy and more moderate growth in several economies that experienced strong recoveries the previous year (Argentina, Uruguay and Venezuela), according to the UN body. In 2004, economic growth in the region was the fastest since 1980.
The rate of inflation will remain within last year's ranges, at about 7%. However, some countries will see a slight rise, due to higher fees for regulated services and international prices for food and oil.
Export commodity prices remain relatively high. Although they are expected to fall slightly towards the end of 2005, the yearly average will still be higher than in 2004. Higher commodity prices and the probable continued increase in real exports will offset most of the import growth triggered by more activity. As a result, Latin America's balance sheet of goods will be positive again in 2005, although the export surplus will be slightly lower than 2004, at around US$52 billion.
The current account is projected to be in equilibrium, compared to a US$17 billion surplus in 2004. The lower goods balance and rising international cargo rates, profit remittances and interest rates explain this result.
The strong performance of domestic demand will offset the external sector's reduced contribution to growth. In several countries, remittances from abroad will continue to drive growth in domestic demand. Employment should recover gradually as should real wages, although somewhat less.
Fiscal policy in 2004 was characterized by improvements in public finance in several countries and in 2005 expenditures should remain under control, while revenues are forecast to rise slightly.
High indebtedness observed in some of the region's countries, however, will make their growth vulnerable to increase in interest rates in the US. Because of this, although stable growth, the primary fiscal surplus and an exchange rate with moderate fluctuations encourage optimism among foreign investors, country risk is expected to rise slightly over levels earlier in the year.
Although net flows of foreign direct investment should be similar to or higher than 2004, the projected current account balance points to net outflows of other capital, which will reduce the region's indebtedness.
Dollar depreciation against the euro and the yen, apparent in 2004, is expected to continue this year, with important consequences for the region, since it will give additional impetus to several countries' efforts to diversify their export destinations and, above all, will help to promote the region as an important alternative for tourism, mainly from Europe and Asia.
The report, América Latina y el Caribe: proyecciones 2005 (Latin America and the Caribbean: Projections 2005), N°32 in the Estudios estadísticos y prospectivos series, published by the Economic Commission for Latin America and the Caribbean (ECLAC) and is available in Spanish on the web site www.cepal.org or follow this link.
For questions, please contact ECLAC Information Services. E-mail: dpisantiagocepal.org; Tel: (56 2) 210 2380/2149.