UN Agency Sees Slowing Growth in Latin America

Economies in Latin America and the Caribbean  will grow at a slower pace than last year, primarily due to the Euro zone debt crisis and slowing Chinese demand, …

Economies in Latin America and the Caribbean  will grow at a slower pace than last year, primarily due to the Euro zone debt crisis and slowing Chinese demand, according to estimates made by ECLAC.

The Economic Commission for Latin America and the Caribbean (ECLAC) predicts that the whole continent would slow to 3.2% in 2012, down from 4.3% last year.

The United Nations agency states that the slowdown experienced by economies in 2011 carried over into the first half of 2012, and this has brought down the growth projection for the entire year from the 3.7 percent announced in June to 3.2 percent.

The slowing Chinese economy will have a large impact on the continent as it has been a main supplier of commodities, like oil and iron ore, to the communist country, the report noted.

“The economic performance of Latin America and the Caribbean in 2012 and 2013 is largely subject to the form taken by adjustment processes in developed countries, as well as the slowdown in China. It will also be dependent on the region’s own response capacity”, indicated Alicia Bárcena, Executive Secretary of ECLAC.

However the report concludes that most countries now have the fiscal room for manoeuvre to react with anti-cyclical policies to stabilize the patterns of employment, investment and growth.

Argentina and Brazil, which account for a considerable proportion of the region’s GDP, will however have slower growth than the rest (2.0 percent and 1.6 percent, respectively).

Brazil experienced a stronger slowdown than other countries in the second half of 2011, and it was only in the beginning of the second half of 2012 that some signs of recovery began to appear. In Argentina, the fall was most striking during the first six months of 2012, the report added.

According to ECLAC estimates for 2012, growth will be led by Panama (with GDP growth of 9.5 percent), followed by Haiti (6.0%) and Peru (5.9%). Bolivia, Chile, Costa Rica, Nicaragua and Venezuela will grow by 5.0% this year, while Mexico will expand by 4.0 percent.

Paraguay’s economy is likely to shrink by a record 2 percent due to environmental disasters and droughts that destroyed part of its production of soya, the country’s key export commodity.

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The Caribbean is forecast to grow by 1.6%, Central America by 4.4% and South America by 2.8%. In the Caribbean, the recovery will be gradual, with growth rates slightly higher than in 2012 in countries that are the most dependent on tourism.

Economies in the region are, however, expected to bounce back in 2013, as Argentina and Brazil recover from 2008 global financial crisis.

As far as employment is concerned, the document explains that higher wages have contributed to a moderate expansion of internal demand and consumption in the region. In a selected group of countries, the urban regional unemployment rate fell from 7.2% in the first half of 2011 to 6.8% one year later. For the region as a whole, average unemployment is expected to be 6.5% for the year as a whole, compared with 6.7% en 2011.

In the report, ECLAC states that investment in the region has been particularly vulnerable to external shocks. To minimize the effects, ECLAC suggests a ‘comprehensive stabilization approach’ that coordinates fiscal, monetary, foreign-exchange and macro-prudential policy.

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