Economic Report – Latin America

Economic Report – Latin America

Overall, 2005 was a solid year for Latin America, economically. Overall growth was satisfactory (4.1 percent) with two notable overachievers (Venezuela: 9.4 percent, and Argentina: 8.2 percent) and two disappointing countries that used to be the continent's economic powerhouses (Brazil: 2.6 percent, and Mexico: 3.1 percent). Below are selected data for Latin America: Growth of Combined Gross Domestic Product: 4.1% in '05; Forecast: 3.9% in '06 Combined Current Account percentage of GDP: 1.5% in '05; Forecast: 0.5 % in '06 Fiscal Balance percentage of GDP: -0.9% in '05; Forecast: -1.0% in '06 Consumer Price Inflation: 5.7% in '05; Forecast: 5.3% in '06 Unemployment: 4.3% in 2005; Forecast: 4.1% in '06 General remarks: Inflation and unemployment have long been key problems in Latin America. Inflation as a whole is in a lot better shape than it used to be, though it is still relatively high in the two fastest-growing countries --Venezuela (14.4 percent inflation expected to grow to 14.9 percent in 2006) and Argentina (12.3 percent inflation expected to go down to 11.6 percent in 2006). Inflation in all other Latin American countries is in single-digit figures. These two countries also have relatively high unemployment rates (Venezuela has an 8.9 percent unemployment rate expected to rise to 10 percent in 2006; Argentina has an 11.5 percent unemployment rate expected to go down to 10.5 percent in 2006). The two worst countries for unemployment are hopeless Paraguay (22.7 percent) and Uruguay (11.5 percent). Outlook for key countries: Brazil: High interest rates at home slowed down domestic demand considerably. No significant interest rate cuts are expected for 2006. Growth will be sluggish and will come in at around 3.5 percent, mostly on the back of the continued export boom. Mexico: With inflation firmly in check, interest rates will be cut further. But continuous lack of structural reforms and Asian competition as manufacturing hubs are expected to keep Mexico's growth at a disappointing level of 3.9 percent. Venezuela: Will continue to experience the fastest growth, albeit at a slower pace. GDP is expected to grow 5.8 percent in 2006, largely due to the strength of the crude oil exports that account for 16 percent of the total GDP. Watch out for the mercurial politics of President Chavez. Argentina: GDP growth will be around 5.5 percent, considerably lower than the 2005 rate. Reigning in inflation will be a top priority for the government. A double-digit inflation rate is simply not acceptable, given Argentina's past history in this matter.