Growth outlook worsens further as chances for a short-term U.S. recovery dwindle.  The Consensus Forecast for Latin American economic growth this year experienced another major pullback as the chances for a second half economic rebound in the United States dwindle and governments within the region are unable to provide a domestic impetus to counter the global softening.  This month’s 0.4 percentage point drop in average regional growth adds to the 0.6 percentage point cut applied in last month’s publication.  The GDP-weighted average for the seven surveyed countries still remains well above the 0.2% registered during the 1999 recession but now stands at almost half the growth rate anticipated at the beginning of the year.  In addition, uncertainty over a strong recovery in 2002 is rising, reflected in a 0.3 percentage point drop in expected regional growth compared to last month.  The U.S. slump and the ensuing global softening figure most prominently as the reasons for the continuous cutbacks to economic projections as they have several downside effects.  Next to reduced demand for Latin American exports, the weaker global demand feeds through to lower prices for the major commodities.  The price for copper, Chile’s main commodity, which accounts for more than 40% of total exports and also an important commodity in Peru, has dropped from US$ 2,000 per tonne in mid-September last year to US$ 1,550 by the end of June.  Prices for coffee, a main export product in Colombia and Brazil, have dropped to the lowest levels observed since 1993.  Oil prices, on the other hand, have so far remained relatively stable – the price dropped 7% since June of last year -- benefiting net exporters Colombia (35% of total exports), Mexico (10%) and Venezuela (80%) but causing pressure on price levels and external accounts in the remaining countries. 

Argentina peering at another recession.  Argentina suffered the largest cut in its growth outlook and replaced Peru as the slowest growing economy in the region this year.  Economy Minister Cavalllo’s plan to revive the external sector with a kind of dual exchange rate regime in the form of subsidies has not been well received by the markets.  As a result, spreads have skyrocketed to 1,621 basis points over the comparable US Treasury with negative repercussions on domestic credit, which should further throttle investment and consumption.  Panellists do not expect the measures to have a positive impact in the coming year either and have cut their 2002 GDP growth forecasts again.  In Brazil, the government’s decision to mandate energy rationing in industry, the engine behind last year’s healthy recovery, will stifle economic growth.  June output data are eagerly awaited since they will give a first indication of the impact of energy rationing measures on economic activity.  In the meantime, the Consensus Forecast for Brazilian industrial output and GDP growth this year has been lowered.  

Chile remains at top spot.  Mexican economic activity is now seen moderate significantly after last year’s record growth, as increasingly more analysts do not expect a major pick-up in demand from the United States before the end of the year.  Moreover, the pessimism is carrying over into next year, where forecasts have been reduced 0.2 percentage points.  In Chile, unemployment continues to rise and is thwarting a rebound in consumption needed to offset the weaker external sector.  Consequently, the Chilean growth forecast was stripped of another 0.4 percentage points for 2001.  Nevertheless, Chile remains the fastest growing economy in the region.  Forecasts in Peru were slashed 0.3 percentage points, despite the success of Toledo’s tour to the United States and Europe where he garnered some US$ 1.7 billion in financial aid, a welcome additional resource to revive the ailing economy.

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.