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More Optimistic
Expectations. Despite a less favourable outlook for the global economy owing to a
slowdown in the United States, projections for regional economic growth have been
further revised upwards and are currently just a notch below the 4%
mark. This month’s upward revision
was mainly driven by Brazil and Mexico whereas Argentina, Colombia and
Venezuela experienced downward revisions in their projected economic growth rate. Brazil inched upward on improved sentiment
amid political advances on the fiscal front and positive surprises in the
country’s external accounts. As in
last month’s survey, Mexico saw a strong upward revision. Given that Mexico is by far the most US-dependent
economy in Latin America this comes at a surprise in the light of a less
optimistic sentiment for the US economy.
However, even though some 90% of its exports are directed to its
northern neighbor and Mexico remains highly dependent on the US, domestic
demand has been picking up considerably over the recent past and contributes
to the more optimistic outlook. Owing
to its currency board Argentina suffered most from the US interest rate hike
and is now expected to grow only modestly this year after. Downward revisions in Colombia and
Venezuela reflect political uncertainty, as the countries’ political elites
remain focused on the political agenda.
Inflation outlook
improving. All countries, except Chile and Colombia, saw
downward revisions in the 2000 inflation rate. As a consequence the
regional average inflation rate dropped. Brazil is the main driver
behind the improved inflationary outlook for the region. Substantial
advancements on the fiscal front should ease pressures on consumer prices and
render the Central Bank’s task of driving down inflation easier.
Venezuela also experienced a significant drop in the projected increase in
consumer prices. However, the forecasted rate remains above the the
Central Bank’s year-end target of 15%.
Political jitters
in the Andean nations. Presidential elections in Peru and
postponement of the mega-elections slated for 28 May in Venezuela provided
political observers with some surprises. In Peru, the challenger to
incumbent President Alberto Fujimori, Alejandro Toledo, decided to boycott
the elections on the grounds of unfair electoral conditions. Further,
Toledo called on his supporters to either abstain or to nullify the
vote. Fujimori refused to give way to international pressure that he
postpone the elections and won his third consecutive term uncontested.
Threats of economic sanctions have already given way to a OAS mission that is
to explore options for strengthening democracy. In Venezuela, incumbent
President Hugo Chávez Frías is likely to win the upcoming mid-July
presidential poll. Despite the Supreme Court-imposed postponement of
the May elections, the key challenger Francisco Arías Cardenas remained well
behind Chávez in the May polls. While Chávez's political forces are
likely to benefit from the president's ongoing popularity, opposition
candidates are also well positioned to garner victories in key state contests
and for the national congressional elections. Thus, following the July
elections, Chávez is likely to face a political landscape less pliant to his
dictates, which will require increased willingness to compromise to avert
gridlock.
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