Wednesday, December 12, 2012

Latin American economies have continued to show growth and resilience despite the global economic downturn in 2012

Despite the continuing crisis in Europe, the sluggish recovery of US and the Chinese slowdown, Latin America has 
  • shown growth of 3.1% in 2012 with promise of 3.8% in 2013
  • Increased its international reserves to a historic record of 780 billion dollars
  • Increased net FDI to 189 billion dollars in 2012 from 126 bn in 2011
  • Increased imports to 1075 billion dollars in 2012 from 1035 billion in 2011
  • Reduced unemployment to 6.4% in 2012 from 6.9% in 2011
  • Reduced inflation to 5.8% in 2012 from 6.9% in 2011
These are according to the report of Economic Commission for Latin America and Caribbean ( ECLAC) released on 11 December 2012. 
Highlights of the report:
The region’s GDP growth rate in 2012 is estimated at 3.1%. This exceeds the global growth of 2.2%. Panama showed the highest growth of 10.5%, followed by Peru-6.2 %,  Chile- 5.5%, Venezuela –5.3% and Colombia 4.5%.  Lower growths were witnessed for the three largest countries; Brazil- 1.2 %, Mexico- 3.8% and Argentina 2.2% . Paraguay was the only country which had experienced a negative growth ( - 1.8% ) in 2012.
The region is expected to increase its growth to 3.8 % from 3.1% in 2011. It may be noted that the region grew by 5.9% in 2010 and 4.3% in 2011.
In 2013, Brazil is projected to grow by 4%, Mexico- 3.5%, Argentina 3.9% and Colombia 4.5%
With external demand weakening, growth in the region was driven by domestic demand, fuelled partly by monetary or fiscal policy measures in most of the countries. The rise in demand was chiefly a reflection of consumption, with public consumption making a larger contribution than in 2011, consistently with the expansion of public spending in many countries.The increase in private consumption is based mainly on the expansion of credit to the private sector and on the continuous improvements in labour indicators.
Unemployment eased down to 6.4% in 2012 from 6.9% in 2011. It was 8.1% in 2009 and 7.3% in 2010.

In 2012, real wages rose, which helped to bolster domestic demand, particularly consumption. Higher minimum wages in many countries contributed to the rise in real wages.  

Inflation has gone down to 5.8% in 2012 from 6.9% in 2011. The region’s highest inflation rates —into double digits— were recorded in Argentina and Venezuela. Inflation has come down in Venezuela from 29% in 2011 to 18.5% in 2012. Argentine inflation should be over 20% but the government cooks the books and shows the official rate at less than half of the actual inflation. 
It may be noted that the average inflation rate of the region has remained in single digit in the last ten years. The maximum inflation rate was 8.2 % in 2003.
While the fiscal position deteriorated in most of the countries, the fiscal policies have remained predominantly prudent
Debt levels rose only slightly and did not pose a threat to fiscal sustainability 

International reserves of the region in 2012 is estimated to be around 780 billion dollars, increasing from 723 billion in 2011 and 413 billion in 2007. Brazilian reserves are an impressive 378 billion dollars while the Mexican reserves are 166 billion.

The Latin American countries posted a balance-of-payments current account deficit equivalent to 1.6% of regional GDP in 2012, a slight deterioration from the 1.3% in 2011. 

Net FDI in Latin America in 2012 was 189 billion dollars as against 126 billion in 2011 and 75 billion in 2010. Brazil had the highest FDI of 132 bn $, followed by Peru –18 bn $ and Colombia-14 bn $. Mexico had a negative 4.7 bn $ since the outflow of FDI was more than the inflow.

The average Debt-to-GDP ratio for 19 countries of Latin America is estimated to have continued on its downward path, falling from 30.5% of GDP in 2011 to 29.57% in 2012 at the central government level. 

Total external debt of the region reached 1104 bn$ in 2012 from 1080 bn $. Brazil's debt has increased to 303 bn $ in 2012 from 298 bn in 2011. Mexican debt stands at 218 bn in 2012 as against 209 bn in 2011. The Argentine debt has marginally gone up to 142 bn from 141 bn in 2011.
Brazilian Real and Mexican and Argentine Peso had depreciated in value in 2012 while most other currencies of the region had appreciated.

In 2012, a number of the region’s countries implemented new macroprudential measures to strengthen their financial systems. The most common measures of this sort were changes to legal reserve requirements and reforms to the regulatory frameworks of financial systems. 

Total trade of the LAC region in 2012 is estimated to be 2196 billion dollars. Exports will be 1122 billion dollars, marginally increasing from 1106 billion in 2011. Imports of the region is estimated to be 1074 billion dollars, increasing from 1035 billion in 2011. Mexico, the top trading country of the region will have exports of 370 billion dollars in 2012 increasing from 350 billion in 2011. Their imports will be 370 billion in 2012. Brazilian exports in 2012 is to decline to 244 billion dollars from 256 bn in 2011. Their imports would remain at 226 billion, the same as in 2011. The third largest trader in 2012 is Venezuela with 96 bn exports and 56 bn imports. Surprisingly, Chile ( market of 17 million people)  has overtaken Argentina ( 40 million population) and Colombia ( 50 million population ) in trade with exports of 80 bn and imports of 73 bn in 2012.

India should target 2% of the total imports of Latin America. Two percent of 1074 billion dollars in 2012 is 20 billion dollars. In 2011 India's exports were 11.6 billion dollars.  Indian exports could reach 20 billion dollars by 2015 if the exporters and the government of India intensify their export promotion to this under explored and promising market.

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