Economic overview of South America

General: In a recent publication the International Monetary Fund forecast a 1.5% reduction of Latin America’s collective GDP for 2009. The World Bank disagrees with this number somewhat and sees a milder contraction of 0.6% for the year. For 2010 the IMF predicts a growth of 1.6% for the region whereas the World Bank forecasts 2.2%. No matter what number one believes in, the growth rate will not be good enough to prevent an estimated four million people in the region from receding into poverty again, reversing a six-year trend when poverty in Latin American countries was severely reduced. The World Bank plans to invest $14.0 bn in the region this year, which is three times more than it did last year.

Argentina: President Cristina Kirchner’s predecessor, her husband Nestor Kirchner, publicly stated recently that Argentina is not in a recession. Reliable private institutions beg to differ and presented their own version which is sharply different from the official figures. According to these unofficial numbers the economy contracted 2.2% in Q4 of last year and 3.5% in Q1 of this year. This would put Argentina clearly into a recession. Hardest hit was the manufacturing sector, decreasing 9.4% in Q1 and 7.9% in the past twelve months. Retailing dropped 8.0% in March and the farming sector shrank 3.1%. The International Monetary Fund expects Argentina’s GDP to shrink 1.5% in 2009. Argentina’s steel production totaled 257,000 mt in March or 49.5% less than last year. In the first three months of 2009, 798,000 metric tons were produced or 41.7% less than last year.

Brazil: The government is trying on various levels to stimulate the economy. A program to build one million houses was unveiled and the targeted budget surplus for 2009 was reduced to 2.5% of GDP from 3.3% in order to make more stimulus money available. The Central Bank reduced the overnight lending rate to 11.25% with another one percent expected to be cut by the end of April. On the brighter side, the current account deficit narrowed to $5.0 billion in Q1 because of less imports and less money transfers abroad. Retail sales rose 1.5% in March compared to February and 3.8% compared to last year. Car sales were one of the largest gainers, increasing 4.6% in March. Analysts covering Brazil now expect a contraction of 0.3% in economic growth for 2009. Brazil's steel production totaled 1.731 million mt in March or 41.5% less than last year. In the first three months of the year 5.00 million mt were produced or 42.1% less than last year.

Chile: Chile seems to be weathering the global recession relatively well. Primary lending rates were slashed “US style” to 1.75% and further cuts are expected. Still, local analysts forecast an economic contraction of 0.5% for the year which is more pessimistic in its outlook than the IMF projection of 0.1% growth. Steel production totaled 70,000 mt (e) in March (-52.7% compared to last year). In the first three months of the year 224,000 mt were produced or 48.5% less than last year.

Venezuela: Depressed oil prices have seriously lowered revenues for the government’s coffers. The Chavez Administration has now introduced plans to sell $15.8bn in local debts and let the banks know that it expects them to buy these securities. Inflation is still running high at close to 30% but at least it did not get worse in the last few months. As per numbers issued by the Central Bank inflation for March ran at 1.2% and was 4.8% for Q1. The Japanese government has agreed to invest $33.5bn in the Venezuelan oil and gas industry and China will follow suit with $4.0 billion. In the meantime, another foreign company is facing imminent closure of its Venezuelan venture. Canadian mining company Gold Reserves is seeking international arbitration because its agreement to develop the Brisas gold mine was revoked by the government who now want to shift it to a joint venture with a Russian company. Venezuela's steel production totaled 380,000 mt (e) in March (+63.4% compared to last year). In the first three months of the year, 1.141 million mt were produced or 19.6% more than last year.