(21 December 2011) According to a publication presented today by the Economic Commission for Latin America and the Caribbean (ECLAC), lower growth of the world economy and greater uncertainty and volatility in international financial markets will have repercussions for Latin America and the Caribbean, a region which will register a slight drop in growth to 3.7% in 2012, having reached 4.3% in 2011.
In the Preliminary Overview of the Economies of Latin America and the Caribbean 2011, the regional organization of the United Nations states that although growth was already slower by the first half of 2011 when compared to 2010, most of the region showed a positive performance thanks to a favourable external situation. However, volatility and uncertainty complicated the global environment during the second half of the year, which caused a greater slowdown of economies compared to 2010, when the region grew by 5.9%.
According to the publication, the projected growth for 2011 means a rise in per capita output by 3.2%, and like in previous years, the results are uneven among the subregions, given that the South American countries grew by 4.6%, the economies of Central America by 4.1% and the Caribbean nations by only 0.7%.
The countries with the greatest growth this year will be Panama (10.5%), Argentina (9.0%), Ecuador (8.0%), Peru (7.0%) and Chile (6.3%), while El Salvador will only grow by 1.4%, Cuba by 2.5% and Brazil by 2.9%.
In this context, rapid job creation was observed and the regional open unemployment rate dropped from 7.3% to 6.8%.
In addition to the effect of an increasingly complex external situation, the lower economic growth in 2011 is due to measures applied particularly in Brazil to reduce domestic demand and prevent overheating as a result of its substantial growth in 2010. However, many countries grew more in 2011 than in 2010, as a result of a number of factors such as the recovery from natural disasters in the case of Chile and Haiti, the high prices of hydrocarbons, which favoured countries such as Venezuela and Ecuador, and the effect of the recovery of the United States of America on exports and remittances from some countries in Central America and the Caribbean.
The macroeconomic policy challenges which the countries had to face this year included the rise in regional inflation, which rose from 6.6% in 2010 to almost 7% in 2011, the appreciation of various currencies - in particular during the first half of the year-, the recovery of fiscal space, maintaining growth and particularly, starting from the second half of the year, the threat of a slowdown due to the external context.
According to the document, economic growth in the region is not immune to the prevailing situation of global uncertainty. "There is a great possibility of a deep crisis in the Eurozone, which would significantly affect the global economy overall and would impact our region primarily through the real channel (exports, prices, foreign investment, remittances and tourism) and the financial channel (greater volatility, possible capital outflows and difficulties in accessing credit)," stated Alicia Bárcena, Executive Secretary of ECLAC, while presenting the report.
ECLAC projects that growth over the next year in Latin America and the Caribbean will be led by Haiti (8.0%), followed by Panama (6.5%), Peru (5.0%), Ecuador (5.0%) and Argentina (4.8%).
Furthermore, labour markets will continue to grow, albeit at slower rates than in previous years, which will place unemployment within the range of 6.6% and 6.8%. However, the current account deficit would increase again from 1.4% to 1.8% of GDP.
The publication stresses that future evolution of growth in Latin America and Caribbean will be influenced by the extent and scope of deterioration which is observed in the world economy. The drop in the level of activity in developed countries would result from a fall in the demand for goods which would negatively impact regional exports and the prices of principal export products, which is already being observed.
ECLAC stresses that the region has a number of strengths which would enable it to better face the downturn of the world economy, including a high level of reserves, which would enable the region to finance a deficit in the current account, improvements in the public accounts and -except in a number of countries in the Caribbean- low levels of public debt, which would generate spaces for countercyclical fiscal policies, and prospects of falling inflation, which would open space for an expansionary monetary policy.
However, in many countries there are fewer arenas for anti-crisis policies than before the crisis 2008-2009, therefore, the measures available are less powerful than on that occasion. In face of a possible deteriorating global economic situation there would be less capacity to coordinate action among the main economies.
Lastly, the report states that some of the principal challenges for Latin American and the Caribbean economic policy are to prepare for an eventual deterioration of the international situation, taking into account the possibility of sudden changes in the external situation and the delay in the impact of macroeconomic policies, to design a countercyclical fiscal policy package and ensure that it is financed for easy implementation, depending on the circumstances, to protect jobs and the most vulnerable social sectors and to strengthen intraregional integration.
See also:
- Complete report Preliminary Overview of the Economies of Latin America and the Caribbean 2011
- Table. Latin America and the Caribbean: Total Gross Domestic Product, 2008-2012
- Presentation by ECLAC Executive Secretary, Alicia Bárcena
The Preliminary Overview of the Economies of Latin America and the Caribbean 2011 is available on the ECLAC website.
Any queries should be addressed to the ECLAC Public Information and Web Services Section. E-mail: dpisantiago@cepal.org; Telephone: (56 2) 210 2040.
Follow us on: Twitter, Facebook, Flickr and YouTube.