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Latin American and Caribbean Economies Grow 5.6% in 2007; Slight Downturn Viewed for 2008

Latin American and Caribbean Economies Grow 5.6% in 2007; Slight Downturn Viewed for 2008

During 2007, Latin America and the Caribbean sustained a favorable economic situation that allowed for growth in nearly all the countries of the region. Despite the deteriorating external financial context over the second half of the year, the region’s gross domestic product (GDP) will have grown by 5.6%, according to estimates by the Economic Commission for Latin America and the Caribbean (ECLAC).

In its Preliminary Overview of the Economies of Latin America and the Caribbean 2007, presented today by ECLAC Executive Secretary José Luis Machinea, the UN regional commission report states that, for 2008, Latin America and the Caribbean could register a 4.9% growth rate. Should this forecast be borne out, it would signify the region’s sixth consecutive year of growth, for a cumulative per capita GDP increase of 24%, or 3.5% per annum.

According to ECLAC, many of the trends characterizing the region’s current stage of economic growth stayed on course during 2007, including its current account surplus (albeit at a lower level), renewed improvements in terms of trade (also at a lower rate), sustained positive primary results for fiscal accounts, decreased unemployment; increased international reserves and reduced external debt as a percentage of GDP. Meanwhile, dynamism in investment continued and private consumption grew considerably.

Current accounts registered a surplus of 0.7%, with terms of trade increasing by 2.6% overall, despite notable differences among countries. Gross disposable national income grew by 6.5%, exceeding GDP growth rate, while domestic demand increased by 7.7%.

The region’s net external liabilities continued to drop over 2007. Most countries reported inflows of private capital, which upped the pressure on exchange rates and produced a significant accumulation of international reserves, which are estimated to exceed 3.5% of regional GDP. At the same time, the foreign debt burden dropped considerably.

Taken as a whole, these factors place Latin America and the Caribbean in a much stronger position to face increased external volatility.

Another positive development is the lowering of the unemployment rate to 8.0%, its lowest level since the early 1990s. Moreover, this decrease occurs in a context of relative improvements in the quality of employment, which, coupled with economic growth, has a positive impact on poverty indicators.

Forecasts and Challenges

The United States mortgage loan crisis has generated a sense of increased risk of economic slowdown. While the magnitude of the US crisis is not yet clear, the performance of other national economies constitutes a matter of concern. The most likely scenario for a US economic downturn is of 2.2% in 2007 to 2.0% in 2008. Growth in the European Union could drop from 2.9% in 2007 to 2.5% in 2008, and Japan could follow suit, with a projected decrease of 2.0% to 1.7% in 2008.

In summary, the lesser pace of developed country growth makes moderate world economic slowdown possible, with limited but divergent impacts on emerging economies. For Latin America and the Caribbean, the ECLAC Preliminary Overview 2007 forecasts that the relative strength of the region’s economies warrants cautious optimism.

But the current situation is not free of risks. In addition to the likely slowdown of the US economy, Latin America exhibits warning signs of its own, including persistent decreases in the real exchange rate, growing inflation in several countries, and an overall increase in public expenditure.  

In addition to these short-term risks, ECLAC cautions that the region is not doing enough to improve competitiveness at the systemic level, and cites the specific need to increase investment (especially infrastructure for energy and transport), encourage innovation and foster greater human resource capabilities, primarily by improving the quality of education.

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Fecha de Publicación: 13 de Diciembre de 2007

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