MercoPress. South Atlantic News Agency

Latam forecasted to contract 1.9% this year and expand 3.1% in 2010

Mercosur members Argentina, Uruguay and Brazil are well prepared to weather the crisis, says Cepal.

The Latinamerican and Caribbean economy is forecasted to contract 1.9% this year following six years of sustained growth, but is expected to expand 3.1% in 2010, according to the latest estimates released Wednesday by the United Nations Latinamerican and Caribbean Economic Commission, Cepal in Santiago de Chile.

“Following six years of sustained growth, Latinamerica and the Caribbean GDP is expected to contract 1.9% in 2009”, said the Cepal report. The country with the worst performance in the region is Mexico, which is expected to contract a record 7%.

However given the normalization of financial markets and “improved expectations” regarding the performance of some economies of the region, recovery should begin in 2010 albeit at “moderate rates”.

“It is possible that a gradual recovery could be seen in the second half of 2009. But in 2010 the region will return to positive growth at an annual rate of 3.1%, which is modest compared to recent years”, according to the report.

Unemployment is also expected to increase from 7.4% last year to 9% in 2009 while per capita income should contract 3.1%.

This is the third time this year that Cepal has downgraded its estimates: in May contraction was to be 0.3%; in June 1.7% and now 1.9%.

Cepal also anticipates that recovery will come at a very modest rate compared to other years, 6.1% in 2004; 4.9% in 2005; 5.8% in 2006 and 2007 and 4.2% in 2008.

Latinamerican exports during the first half of this year fell 30% in value and 7% in volume compared to the same period a year ago. Remittances also were down between 5 and 10% while foreign investment in the region is expected to contract 40% in 2009.

“All of this has had an impact on employment” says the report adding that since the beginning of the world crisis in early 2008 to the first quarter of 2009, over a million people have lost their jobs in urban areas, which is equivalent to an increase of 0.6%.

With unemployment forecasted to reach 9%, there will be another 3 million jobless (totalling 15.9 million) and a surge in informal labour and poverty indexes.

Nevertheless recovery is set to be swifter this time given the lower levels of public debt, greater international reserves which enabled counter cyclical policies to mitigate the effects of the crisis on the most vulnerable sectors of the population.

But the report also points out to the drop in fiscal revenue to the tune of 1.8% of GDP so far in the first half of the year threatens the sustainability of the current counter crisis measures in several countries.

In this context the countries forecasted to suffer the worst contractions are Mexico, 7%; followed by Paraguay and Costa Rica, 3%; Honduras, 2.5%; El Salvador, 2%, Chile, Guatemala and Nicaragua, 1% and Brazil 0.8%.

Countries posted to manage growth are Bolivia and Panama, 2.5%; Peru and Haiti, 2%; Argentina, 1.5%; Cuba, Ecuador, Dominican Republic and Uruguay, 1%; Colombia 0.6% and Venezuela, 0.3%.

Recovery in 2010 will see Peru leading with a 5% expansion, followed by Bolivia, Brazil, Chile, Colombia, Uruguay and Venezuela with 3.5%.

Argentina, Costa Rica, Cuba and Panama are forecasted to expand 3%, while Ecuador, El Salvador, Guatemala, Honduras, Mexico and Nicaragua, 2.5% and Dominic Republic and Haiti, 2%.