Saturday, October 09, 2010

Mercosur ...GDP champion in 2010

Readers of my blogs will recall my euphoria and celebration when the four member countries of Mercosur reached the quarter finals of the 2010 World Cup.

Don’t ask me what happened afterwards. I had to drown my sorrow with lots of Brazilian Caipirinha and Brahma and Argentine Malbec.

Ask me now about the economy. Mercosur has emerged as the GDP growth champion in 2010. Brazil and Argentina will have 7.5% growth each, Paraguay will grow by 9% and Uruguay by 8.5%. These figures put the four Mercosur members among the top five in the whole region of Latin America and Caribbean.

The country which is projected to have the highest growth in Latin America and Caribbean in 2010 is… hold on… a surprise… even for me. It is Paraguay ...with 9%. Viva Paraguay !!!.

These are the figures mentioned in the World Economic Outlook report released by the International Monetary Fund on 6 October. According to this report, the economies of Latin America and the Caribbean will grow by 5.7% in 2010. This is higher than earlier predictions. The IMF has said, ¨ the LAC region is exiting the global crisis at a faster pace than anticipated. This reflects solid macroeconomic policy fundamentals, sizeable policy support, favourable external financial conditions and strong commodity revenues¨.
The July 2010 report of the UN Economic Commission for Latin America and Caribbean( ECLAC) had predicted GDP growth of 5.2 % for the region while its December 2009 report had predicted 4.3%. Here is what ECLAC says in its September2010 report ¨Output and trade in Latin America and the Caribbean have recovered more quickly than expected. This solid revival is largely based on the dynamism of domestic demand, a pick-up in investment and robust exports driven by demand from China and the rest of Asia, and by the normalization of demand in the United States¨.
As part of the current fashion to group countries into G-20, G-8 etc, the IMF has labelled Brazil, Chile, Colombia and Peru as " LA-4 " This foursome's policy framework is described as more market-friendly than the others in the region.
"Impressive improvements in macroeconomic policy frameworks over the past two decades, combined with accommodative policies, easy external financing conditions, and strong commodity prices, are driving a robust recovery in the LA-4," the report said.

The IMF forecast of GDP growth for other countries and sub-regions are: Chile - 5 %, Peru- 8.3% Colombia - 4.7%, Mexico - 5%, Central America -3.1% and Caribbean 2.4%. South America is projected to grow by 6.3%. Of course, South America, which is rich in natural resources has benefitted from its commodity exports.
The only country in the region which has gone against the growth trend is Venezuela which faces an ecoonomic contraction of 1.3%. The consolation is that this is better than the contraction of 3.3% in 2009.

The IMF has projected that the average inflation of the region in 2010 would be 6.1% which is up slightly from 6% last year. The inflation in 2011 is projected to decline to 5.8%. The average inflation of the region has remained in single digit in the last ten years.

But again Venezuela is an exception. It has the highest inflation of 29.2% this year. This is said to be the highest in the world this year. Venezuela is projected to carry on this distinction in 2011 too with 32%. The only other country in the region with a double digit inflation is Argentina with 10.6%. But the good news is that these are just small double digits. The region will not go back to hyper inflation in four digits as it happened in some countries till 1990.

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