|
The global outlook continues to
deteriorate, as major economic areas are showing increasing signs of
weakness. While it is not yet clear whether the U.S. economy will experience
an outright recession this year, economic growth came to a virtual
standstill in the first quarter. Moreover, the housing market has not yet
bottomed out and persistently falling real estate prices promise to further
gnaw at consumer confidence, which has already hit the lowest level in 26
years in April. The economy should recover somewhat in the second half of
the year, when the fiscal stimulus package will kick in. However, the impact
of additional spending power will be short-lived and the outlook for the
U.S. remains subdued well into 2009. The signs from the Euro Area are also
not encouraging and the European Commission again trimmed its forecast for
economic growth in the Euro Area amid weakening investment growth and
slowing personal consumption. Simultaneously, rising inflation continues to
discourage the European Central Bank from cutting interest rates for the
time being. Meanwhile, the outlook for the Japanese economy continues to
deteriorate, as business confidence fell to the lowest level in four years
and consumer sentiment dropped to a five-year low. Against this backdrop,
although the Latin American region is likely to grow at the slowest pace in
three years, prospects for economic growth remain stable, as the area is
benefiting from robust domestic demand and high commodity prices. |
|
Brazil and
Mexico anchor regional outlook
Consensus
Forecast panellists have left their 2008 output growth forecast for Latin
America unchanged at 4.5% for the sixth consecutive month. Upward
revisions to three of the seven major economies (Argentina, Colombia and
Peru) compensated a downward revision to one country (Chile) and unchanged
forecasts for the remaining three economies (Brazil, Mexico and
Venezuela). Peru experienced
the strongest
upward revisions, as panellists raised their GDP growth forecast by 0.3
percentage points over last month to 7.3%.
The
Peruvian growth outlook continues to improve, as domestic demand, in
particular private investment, will spur economic activity this year.
Next to Peru, Argentina and Colombia experienced an upward revision of 0.1
percentage points to their growth forecast.
In the case
of Argentina,
panellists
lifted their 2008 GDP growth projection from 6.5% expected last month to
the current 6.6%. In spite of looming energy shortages ahead of the
approaching winter season and recent farmer strikes, which disrupted
agricultural exports for several weeks, the economy will grow more than
5.0% for the sixth consecutive year. For Colombia, the panel lifted its
2008 GDP growth projection from 5.3% in April to the current 5.4%, as
recent indicator releases suggest that economic growth will remain strong
in the months ahead.
On the
downside, panellists pared the growth forecast for Chile by 0.1 percentage
points to the current 4.2%. This month’s projection contrasts the 5.2%
expansion expected by Consensus Forecast panellists seven months ago.
Prospects for this year are deteriorating, as export growth is likely to
slow notably amid moderating global demand and a strong peso. In
addition, high interest rates will continue to curb the pace of domestic
demand.
Inflation expectations rise across region
According to
this month’s poll,
average
regional inflation will reach 6.7% by the end of the year, which is up 0.3
percentage points from last month’s projection. This month, Consensus
Forecast panellists raised their inflation forecasts for six of the seven
major economies in the region. Only Argentina experienced a downward
revision. Inflation expectations are rising across the entire region, as
higher food and oil prices continue to exert strong pressures on consumer
prices. For the fifth consecutive month, Venezuela experienced the
strongest upward revision to its inflation forecast, as Consensus Forecast
panellists lifted their estimate by 0.8 percentage points to the current
27.8%. While Venezuela is notorious for its persistent inflation, the
current level is clearly beyond the norm and doubles the 12.6% inflation
registered in 2005. In fact, the projected inflation rate would mark the
highest rate in a decade and could pose a serious threat to economic
stability if monetary authorities fail to rein in inflationary
expectations. Following Venezuela, Consensus Forecast panellists lifted
the inflation outlook for Peru by 0.6 percentage points from 3.6% expected
last month to the current 4.2%. With the current forecast, inflation
would end the year at more than twice the Central Bank’s target rate.
Chile also experienced an important upward revision, as Consensus Forecast
participants lifted their inflation outlook by 0.4 percentage points from
4.4% expected last month to the current 4.8%. The current inflation
forecast is above the Central Bank’s 3.0% target but constitutes a notable
deceleration in inflation after last year’s record 7.8%. Meanwhile,
Brazil and Colombia experienced upward revisions of 0.2 percentage points,
while Mexico’s inflation forecast was lifted a more moderate by 0.1
percentage points. |
