Better Growth Rate for Latin America in 2013

GDP growth rate of Latin America in 2012 is projected to be 3.2% (down from 4.3% in 2011). This is not bad, given the background of the European crisis, uncertain recovery in US and the slow down of China. The good news is that the GDP growth rate is expected to increase to 4% in 2013. This is according to the annual report of the Economic Commission for Latin America and Caribbean ( ECLAC) released on 2 October. The highlights of the report, with my comments, below:

Brasil’s growth is projected to be 1.6 % in 2012 and 4 % in 2013. Brasil is struggling with its high cost of production and doing business (Custo Brasil). The government is determined to to put the economy back on fast track with massive public investment, infrastructure development and lowering of interest rates.

Mexico’s growth expected to be at 4 % in 2012 and in 2013 too. Mexico has been gaining ground in manufacturing and labour cost competitiveness vis a vis China to which it had lost jobs and production in the past. The recent labour reforms legislated by the Mexican Congress and the prospects of reforms in energy and other sectors as well as the election of the young and dynamic Enrique Pena Neto as the next President augur well for the economic prospects of Mexico in the coming years.

Colombia, which is aspiring to overtake Argentina as the third largest economy of the region is projected to grow by a healthy 4.5 % in both 2012 and 2013. Part of this growth story is credited to the administration of President Juan Manuel Santos, who has managed to neutralize the FARC guerrillas and pursue prudent external policies. With its investor-friendly approach, Colombia has emerged as the hottest destination for foreign investors in the region.

Argentina is expected to grow by 2% in 2012 and 3.5% in 2013. The government of President Cristina continues its policies of restrictions and controls of imports, foreign exchange, remittances, prices of many items, retail shopping and foreign travel. There is a strong black market for foreign exchange at a rate of 6.5 pesos for a dollar while the official rate is 4.3. Inflation continues to be high at more than 20% while the official figure is 9%.

Peru remains on the top of the growth chart among major economies of the region with projection of growth in 2012 at 5.9% and in 2013 at 5.5%, after having experienced growth of 6.9% in 2011 and 8.8% in 2010. President Humala has proved to be a true follower of Lula with his pragmatic pro-poor and pro-market policies.

Chile will grow by 5% in 2012 and 4.8% in 2013. Chile continues to be an admirable market of good growth, predictable and transparent policies, least corruption and the best managed economy in the region.

Venezuela is expected to grow by 5% in 2012 thanks to the high oil prices. The elections to be held later this week will be crucial for the long term interests of the country.

Panama has shown the highest growth in the region with 9.5% in 2012 after its double digit growth in 2011.

The nine countries of Central America have shown a collective performance of 4.4 % growth in 2012 and 4% growth expected in 2013.

Paraguay is the worst in the region with GDP contraction of 2% in 2012. The country which had an exceptional 13.1% growth in 2010 is facing fall in agricultural production due to adverse weather conditions. However, it is expected to recover in 2013 with a 5% growth.

The continuing growth of the region has been driven mainly by domestic consumption followed by investment, improving employment and wage levels. The governments of the region have been following, in general, prudent monetary and fiscal policies, Inclusive Development Agenda, reduction of external debt and stimulation of local industry and business.

The average Inflation of the region in the twelve month period upto june 2012 declined to 5.5%, the lowest since November 2010. The only two countries with double digit inflation ( in fact, over 20%) are  Venezuela and Argentina. The government of Argentina continues it policy of Magical Realism by showing inflation figures around 9%, while increasing the salary of its employees (including those of INDEC, the agency which cooks up the official inflation figures) by over 20% to compensate for inflation.

Current account deficit of the region is expected to reach 1.9% of GDP in 2012 from 1.2% in 2011.

Unemployment rate continues to fall in the region as a whole and wage levels are going up.

The countries of the region continued to build up forex reserves which reached 767 billion dollars in June 2012 increasing from 687 billion dollars in June 2011 and 453 billion in December 2008.

Public debt to GDP ratio has been falling in the region and domestic debt accounts for a much larger share of the total debt. The region’s external public debt now represents around 15% of GDP, compared with 85% in 1990.

Thanks to the stronger macroeconomic fundamentals and resilience, the countries of the region have some room for manoeuvre if the external context takes a turn for the worse.

R. Viswanathan – Veteran on Latin America

Ex Ambassador of India in Argentina, Uruguay and Paraguay

 

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