Latin American economic report week of May 16, 2005

Latin American economic report week of May 16, 2005

Economists remain split on whether Brazil's central bank will halt interest rates in a policy meeting to be held later today, May 18. Were the bank to decide to raise rates a quarter point, it would bring the national rate to 19.75%. Such a move would be part of an effort to curb inflation from its 16-month high. The Brazilian economy is walking a very fine line at the moment. Recently the country saw one-off increases in electricity rates, food, and medicine. If the central bank does not act appropriately, those increases could add further fuel to the inflation fire. South America's largest economy is currently showing signs of strain as it slows from a torrent of 8 consecutive rate increases. Brazil's GDP growth is projected to drop to 3.5% from 2004's 5.2%. In April, its inflation rate flared to 8.1%, up 0.6% points from March and the highest rate since December 2003. The central bank is optimistic that the rate will decline to 6.4% by year's end. Further north, Mexican economic growth forecasts have been significantly downgraded after the government reported first-quarter GDP growth was its slowest in a year. The Mexican economy grew at 2.4% in the first quarter, well off the projected 3% estimate. Economists cited decreased demand from the US for automobiles, textiles, and appliances. The consensus from economists is that there is no way Mexico can climb above 4% growth. On average they project a more modest 3.4%. There are clear signs that the government has missed several key correction opportunities. Meanwhile stock markets throughout the region posted gains for the most part. Brazil's Bovespa index rose 1.7%, while Mexico's Bolsa was up 2.2%. Argentina, Chile, and Peru all posted gains; Venezuela's index fell, however. Overall, Latin American stocks rose 2.3%.