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Outlook in Latin America stabilising
With half of the year gone, the outlook for this year’s economic expansion
in Latin America is stabilising. On balance, Consensus Forecast panellists
maintained their 2003 GDP growth forecast for the region over last month
unchanged at 1.6%. This ends a series of continuous downward revisions,
which had persisted since the end of last year, when regional GDP was
expected to expand 2.6%.
Significant downward revisions to
growth outlook since end of last year …
The huge cuts to this year’s growth outlook applied in the first half of
the year conceals the fact that prospects have improved for some Latin
American countries. In fact, the majority of the major countries are seen
more optimistically than at the turn of the year. Among the seven largest
economies, five show an improvement in this year’s growth outlook and only
two are seen as facing worse economic conditions. However, the impact of
the two countries skews the overall picture either due to the scope of the
downward revision or the sheer size of the economy and its weight in the
regional average.
… due to historic recession in
Venezuela …
In Venezuela, the outlook was cut a massive 14.2 percentage points from a
0.9% expansion expected in December last year to a 13.3% decline currently.
The enormous correction to the country’s outlook followed on nation-wide
strikes in December 2002 and January this year, as the opposition intended
to oust President Chávez by applying economic pressure after a military
coup staged in 11 April last year had failed. The strikes crippled the
economy by unprecedented levels, as these two months were practically
wiped out from the national accounting books. More recently, the currency
controls adopted in February have served to undermine economic activity
further, as external trade has come to a virtual standstill. Furthermore,
the oil industry took a huge blow and required several months to restore
full output levels. The downward revision applied to the Venezuelan
outlook also sent the projection for the Andean Community into a nosedive
since Venezuela accounts for almost one third of total output in the five-nation
sub-regional organization, which also comprises Bolivia, Colombia, Ecuador
and Peru.
and moderate cuts to regional
heavyweight Mexico
The other country, which sent the regional average growth projection for
this year downward is Mexico. Even though the country’s outlook was
lowered “only” 1.4 percentage points since December 2002, from 3.4% to the
current 2.0%, the sheer size of the Mexican economy leveraged the impact
of the downward revision on the regional average. The US$ 626 billion
economy (2003 forecast) accounts for more than 40% of total Latin American
output, more than the entire Mercosur region, including Argentina and
Brazil. Over the past eight years, the relative economic importance of
Mexico in the Latin American region has more than doubled, in part due to
the successful recovery from the peso crisis, and also in part due to
reduced importance of other economies. In particular Argentina and Brazil
have lost weight, when measured by GDP in US$ terms. In 1995, the year of
the peso crisis, Argentina accounted for 16% of total regional output and
Brazil for 44%, whereas Mexico’s share in regional output was only 18%.
Massive corrections to the exchange rates and years of recession in the
case of Argentina have brought the weights to 8.0% for Argentina, 29.6%
for Brazil and 40.6% for Mexico. In comparison, Paraguay accounts for less
than 0.4% of regional GDP.
Argentina leads improvements to this
year’s growth outlook as the country rebounds strongly from four years of
recession
The improvements in the regional growth outlook are mainly concentrated in
Argentina, which experienced a significant upward revision of 3.2
percentage points from 1.9% growth expected in December 2002 to the
current 5.2% expansion expected for this year. However, while welcome, the
rebound follows on four devastating years of recession, and even such a
healthy recovery will not bring the country close to the output levels
observed a decade ago. Other countries also experienced upgrades albeit on
a much more moderate scale: Brazil up a 0.1 percentage point from 1.8%
expected in December to 1.9% now, Chile up 0.2 percentage points from 3.1%
expected in December to 3.3% now; Colombia up a 0.1 percentage point from
2.3% to 2.4% and Peru up 0.9 percentage points from 3.2% to 4.1%.
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