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Sentiment for Latin America remains
subdued as Argentina tanks and the military stages a coup in Venezuela
The scenario for a rebound of the Latin American economy is clearly
improving as the outlook for the global economy is lighting up. However
as domestic problems continue to linger, the improved setting has not yet
translated to increased optimism for most countries in the region. Even
though the regional aggregate economic growth forecast was raised from
last month to 1.0% (owing to strong changes in the weight for Argentina),
with the exception of Mexico, no country experienced an upward revision to
its growth forecasts, whereas three countries were revised downward. The
exacerbation of the Argentine crisis has prompted Consensus Forecast
panellists to again lower growth projections considerably and the
Consensus now expects the recession to border 10% this year. In
Venezuela, the increase in social unrest is seen as a further impediment
to a recovery. It should be noted however, that the forecasts for
Venezuela were based on the status quo prior to the most recent events,
which culminated in a military coup on 12 April and restitution of
constitutional order on 14 April. While it ultimately failed, the
military coup provides further evidence of a lack of strong democratic
institutions in that country and will stifle private sector investment,
which was already kept at bay by president Chávez’ caustic anti-business
rhetoric. Finally, Colombia is also seen a notch more pessimistically as
the stepping up of the civil war and elections overshadow economic
prospects.
Chart
1: GDP Growth in World Regions
Source: LatinFocus Consensus Forecast, April 2002.
Yet another upward revision to US
fourth quarter growth
Economic growth data for the fourth quarter last year have been revised
upward yet again. At the end of March, the Bureau of Economic Analysis
(BEA) announced that real gross domestic product (GDP) increased at an
annual rate of 1.7% in the fourth quarter of 2001, according to revised
“final” estimates, which increases the fourth-quarter increase in real GDP
by 0.3 percentage points above the preliminary estimate issued at the end
of February. According to BEA, the upward revision in GDP primarily
reflected a more favourable development in exports of services and a
downward revision to imports of services. The “final” revision marks the
second consecutive upward revision to fourth quarter GDP (see chart) and
while the latest revision is not spectacular, it nevertheless confirms the
positive sentiment that is spreading among economic analysts polled by
LatinFocus.
Chart
2:
Revision
to US Fourth Quarter Growth
Source: Bureau of Economic Analysis.
Consumer sentiment dips in April but
upward trend remains intact
Meanwhile, basically all of the economic indicators presage that the
United States economy will recover at a quicker pace than expected
earlier. While U.S. consumer sentiment edged lower in early April,
according to the University of Michigan's preliminary April consumer
sentiment index published on 12 April, the clear upward trend observed
since a low after the 11 September attacks remains intact, as the slump
compares to a very strong reading in the preceding month. In the March
survey, consumer confidence had soared, reaching its highest level since
December 2000 (see chart). The share of consumers that reported
unfavourable recent economic developments dropped by 20 percentage points
and reports of job losses fell to their lowest level in six months.
Moreover, record numbers of consumers expected the economy to improve
during the year ahead and more consumers than at any other time in nearly
ten years expected the unemployment rate to drop. Consumers also seem to
be upbeat about the medium term prospects. According to the University of
Michigan's March survey, half of all consumers expected continuous good
times in the economy to continue over the next five years.
Chart
3: US Consumer Sentiment, 2000 - 2002
Source: University of Michigan.
Additional data indicate that steam
is picking up in US economy
The Conference Board’s set of economic indicators confirms the optimistic
sentiment prevailing among consumers. In February, the U.S. leading index
held steady, the coincident index increased by 0.2%, and the lagging index
decreased by 0.3%. While not as positive as the preceding releases, the
February leading index is still up 2.4% from its value six months ago and
up 3.1% from its value a year ago. Moreover, the modest gains in the
coincident index appear to be gaining momentum. The Conference Board
stated that if the current trend continues, the trough of the recession
would most likely have occurred in November 2001, making the most recent
economic contraction one of the shortest and certainly the mildest in U.S.
history.
US March retail sales surprise to
the downside
The question, however, has moved from the “when” of the recovery to the
“how large”. And most recent data augur that the recovery will be equally
mild as the preceding slump. On 12 April, the Census Bureau of the
Department of Commerce announced that advance estimates of U.S. retail and
food services sales for March increased at an annual rate of 3.6% (data
are seasonally, but not inflation adjusted). Compared to the previous
month, sales were up 0.2%, the same reading as in February. The March
result came in well below market expectations of 0.4% month-on-month
growth. Despite increasing evidence that the upswing will be rather mild,
the Consensus Forecast for US economic growth this year has increased
substantially as last doubts over the “if” of a recovery have vanished.
Not even the crisis in the Middle East and potential repercussions on the
global economy of a higher oil price seem to make a dent into the optimism
currently unfolding over the course of the economy. Compared to last
month, the 2002 GDP growth forecast has added 0.8 percentage points and
now stands at 2.4%. However, while this would represent a doubling of the
growth rate achieved last year, it remains the weakest year since the
recession in 1991.
Note: The above text is an abridged version of the LatinFocus
Consensus Forecast briefing for Latin America. For more details
please click
here.
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