Further downward revisions amid slower U.S. growth.  The increasingly gloomy picture of the U.S. economy is taking its toll on the economic growth outlook for Latin America.  Since the October edition of the LatinFocus Consensus Forecast, when regional GDP was expected to grow by 4.2%, panellists have applied five consecutive downward revisions to their forecasts.  In this month’s edition, the Consensus has applied a further 0.2 percentage point cut to the 2001 GDP forecast and now anticipates regional growth to reach only 3.7%.  Mexico’s unique exposure to the United States, which helped propel the country to be the region’s fastest growing economy in 2000, makes it the most vulnerable country in the region to contagion from a slump in the U.S. economy.  As a consequence, Mexico suffered the most severe adjustment, down a full 0.5 percentage points.  Peru also suffered a severe downward revision in its economic outlook for this year, albeit more motivated by the political uncertainty related to the upcoming elections than to its exposure to the United States (for a more detailed account on the Latin American exposure to the United States see the January 2001 edition of the Consensus Forecast).  The 0.4 percentage point downward revision in this year’s growth outlook turns Peru into the slowest growing economy in the region.  Argentina, Chile and Venezuela suffered minor – 0.1 percentage point adjustments to their forecasts.  On the upside, Brazil and Colombia both enjoyed upward revisions as both economies are anticipated to experience more accelerated growth this year. 

Recovery in sight.  In general, panellists are upbeat about prospects for 2002, which as of this month will appear in greater detail in the publication.  Amid rising economic growth in all but one of the surveyed countries, average regional growth should rise to 4.3%.  In 2002, Mexico will recover driven by the anticipated rebound in the United States.  However, the Consensus indicates that the 7.1% growth experienced by Mexico in 2000 will remain a singular event.  Argentina is anticipated to emerge out of the growth slump that has been plaguing the economy for the past two years. Furthermore, Peru should have a firmly established new government, which will provide a backdrop for a doubling of the 2001 growth rate.  Chile will maintain its position, as the region’s fastest growing economy, with growth further increasing.  Only Venezuela with its lacklustre economic policy is projected to experience a slowdown in economic activity from 4.1% in 2001 to 3.5% in 2002.  

Fiscal deficits remain on downward trend.  Lower economic growth will limit governments’ ability to raise tax collection and in the case of Argentina is prompting IMF-endorsed increased government spending.  As a consequence, fiscal deficit forecasts for the region have been revised upward by 0.2 percentage points from last month.  Nevertheless, the overall trend to higher fiscal discipline remains intact.  Panellists are expecting a 2.0% of GDP fiscal deficit for the region, down from the 2.3% in 2000 and 3.3% in 1999.  Furthermore, the economic recovery forecasted for 2002 will assist the governments on their ways to a sounder fiscal policy, with deficits declining to 1.8% of GDP.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing for Latin America.  For more details please click here.

For five-year forecasts, please click here.