Latin American economic overview - January 8, 2007

Argentina: The Argentinian government is keeping its budget in good shape. The primary budget (excluding interest payments) surplus in November rose 20.7% compared to last year. Even though no official numbers were yet presented, analysts guessed at a surplus of Pesos 2.025 billion (US$662 million). GDP: + 9.3% in October on a yearly basis; first estimates for 2006 run around 8.5%. The outlook for 2007 ranges from 4.0% (government) to 7.0% (Central Bank). Consumer Prices: + 1.0% in December from November; annual inflation rate for December ran at 9.8%, down from 10.0% in November. The official inflation estimate for 2007 is 7.0%, however, unofficially it goes as high as 11.0%. Unemployment: 10.2% for Q3 2006 Industrial Production: + 8.4% in November over October, with the biggest gain coming from the automotive industry (+ 31.3% from a year ago). The concern for 2007 is that increasing electricity shortages might curb industrial production next year. Automotive Sales: 39,800 vehicles were sold in October, 9,000 units more than in October 2005; 14,600 cars were exported, an increase of 5,000 units over last year. Trade Balance: + $12.0 billion in November for the previous 12 months Currency: Pesos 3.06 to US$1 as of January 3, 2007 (Pesos 3.04 to US$1 a year ago) Steel Production: 409,000 mt in November (484,000 mt in October). Year-to-date steel production in November was 5.141 million tons, an increase of 4.5% over last year. Brazil: The overall debt ratio still high, representing 72 – 73% of GDP. The benchmark overnight lending rate was lowered 12 consecutive times from 19.75% in September 2005 to 13.25% in December 2006, and the currency appreciated 64% under President Lula da Silva. In November, the government posted a primary budget deficit for the first time in 2006 (- $72.7 million). GDP: +2.76% estimated for 2006; down from 3.5% last year. The initial forecast for 2007 is 3.5%. Tight monetary policies allowed just a paltry growth rate of 2.6% during the last four years. Consumer Prices: rose 2.96% through mid-December for the previous 12 months (6.2% a year ago). The Central Bank forecasts an inflation rate of 3.9% for 2007. Unemployment: 9.5% in Nov. Industrial Production: + 4.8% in Nov. Automotive Sales: grew 12.1% in December over the previous month. 204,800 units were sold in December. For the year, 1.93 million units were sold - an increase of 12.4% over 2005. This is just short of the record set in 1997. In addition, 700,000 units were exported, generating $12.1 billion. US, take note: 82% of all light vehicles sold in December were “flex-fuel vehicles,” running on any mixture of sugar cane ethanol. Trade Balance: + $46.0 million in November 2006 for the previous twelve months. Exports rose 16% in this period to $137 billion and imports went up 24% to $91.0 billion. Next year exports are expected to grow 10.5%. Currency: Real 2.14 to US$1 as of January 3, 2007 (Real 2.31 to US$1 a year ago) Steel Production: 2.705 million mt in November (2.787 million mt in October). Year-to-date November, steel production was 28.264 million mt, a decline of 2.4% over last year. Chile: In December, the Central Bank left the benchmark lending rate untouched at 5.25% for the fifth consecutive time. Because of record copper earnings, the government announced its intention to increase spending in 2007 by the highest margin since 1990. GDP: 5.3% in October. Estimate for 2006 is 4.3% (compared to 6.3% in 2005). Estimate for 2007 is 5.1%. Industrial Production: + 3.2% in November Consumer Prices: + 2.1% annual rate in November – a two year low. First indications for December show + 2.6% annually. Unemployment: 6.6% in November Industrial Production: + 3.2% in November Trade Balance: + $21.9 billion for the previous twelve months Copper Price: Copper had yet another great year even though the spot price was somewhat weakening at the end of 2006. Last quotation for 2006 was US$2.8531 per lb – a 1.3% drop from the previous week. The average monthly copper price in 2006 was $3.0278 per lb which is 82.7% over last year's average monthly price. Currency: Pesos 538 to US$1 as of January 3, 2007 (Pesos 515 to US$1 a year ago) Venezuela: earned $135 million a day in 2006 through oil exports. Government spending rose 51% in the first nine months compared to the same period last year. GDP: + 10.3% for 2006 (estimate); this would be the sixth year in a row that Venezuela had a 10%+ growth rate. Official numbers will be published by the Central Bank in February. Consumer Prices: + 1.8% in December over November. Inflation estimate for 2006 is around 17% (!), the highest in 1 ½ years. Industrial Production: + 12.2% as of September 2006 Unemployment: 8.8% in November (10.9% in November 2005). It is estimated that 47% of all employed people in Venezuela are in “informal” positions. Currency: Bolivar 3,412 to US$1 as of January 3,2007 (Bolivar 2,557 to US$1 a year ago). The official rate is Bolivar 2,150. The eroding purchasing power of the local currency increases the demand and the exchange rate for the US dollar. Steel Production: 440,000 mt (e) in November. Year-to-date steel production in November was4.686 million mt – a 4.1% increase over last year. Cautionary Note for 2007: the World Bank has recently announced that it finds Venezuela's and Argentina's current rate of expansion unsustainable. In both countries, especially Venezuela, inflation will be a major concern in 2007.