Saturday, July 24, 2010

Mid-year review of Latin American markets

The July 2010 report of the UN Economic Commission for Latin America and Caribbean( ECLAC) has revised its estimate of the 2010 GDP growth of the region upwards to 5.2 % from its earlier projection of 4.3% in its December 2009 report. The highlights of the report are:
  • Brazil will be the top performer in the region with GDP growth of 7.6%. Parabens Brasil !!
  • Uruguay and Paraguay will grow by 7% and Argentina by 6.8%. The Mercosur countries are the top four performers of the region as a whole. Oops.. it is like the 2010 World Cup quarter finals in which all the four were in.
  • Mexico will grow by 4.1%, Colombia- 3.7%, Peru-6.7%, Chile-4.3%
  • Venezuela will be the only country which will go against the trend. No surprise...Its GDP is expected to suffer contraction of 3%.

The credit for the quick and robust recovery from the economic contraction of 1.9% in 2009 goes to the resilience and strong macroeconomic fundamentals of the markets and the pragmatic policies and prudent fiscal and monetary management by the governments. Following are some of the examples:

- Gross public debt of the region as a percentage of GDP has been brought down to 30.2% in 2009 from 58.2% in 2002. The highest is Argentina with 48.5% which is very low in comparison to the situation in USA and Europe. Credit should be given to Argentina which had brought down the percentage from 145.9% in 2002.

-The governments rely less on external resources and have been raising more funds from domestic sources. They have been reducing external debt burden consciously.

-The current account deficit of the region was brought down to 0.4% in 2009 from 0.6% in 2008.

-Flexible exchange rates, inflation targetting and sound financial regulations of the banking sector helped the region to withstand the global crisis of 2008-9 better than during the previous global downturns.

-Gross international reserves of the region has been steadily increasing from 163 billion dollars in 2001 to 563 billion in the second quarter of 2010. The reserves of Brazil are 253 billion dollars, Mexico- 104 billion and Argentina -49 billion.

-Inflation was brought down to 4.7% in 2009 from 8.2% in 2009. The average inflation rate of the region has stayed in single digit every year since 2003. Venezuela stands out as the only country with double digit inflation. It was 26.9% in 2009.

-Five countries namely Chile, Mexico, Brazil, Peru and Panama have been upgraded in recent years to investment grade by the Sovereign Rating Agencies.

Of course, the growth of China, India and Asia and the high commodity prices also contributed to the growth of Latin America.


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