MercoPress. South Atlantic News Agency

WB forecasts 4,3% Latinamerican growth in 2005

Latinamerican and Caribbean economies are forecasted to expand 4,3% this year after having reached an extraordinary 5,7% in 2004, estimated the World Bank on the launching of the annual report on world economic growth and development.

Last year the region consolidated a GDP 5,7% increase after having recorded an average 0,4% during the previous three years.

The world bull market for commodities helped Brazil, Mexico, Chile and Argentina which is recovering from the 2002 meltdown.

However the report warns that in the event of a deceleration of commodities prices in 2005 and 2006, growth could suffer because of lesser income.

"However, strong commodities prices mean that country incomes will remain high and will continue to support demand at high levels" indicates the report.

The WB also mentions higher interest rates, as a consequence of a world tendency, and stronger domestic inflationary pressures as another obstacle for growth which should stabilize in the range of 3,7% in 2006 and 2007.

Regarding the global economy WB underlines that 2004 with a 3,8% growth was the highest in the last four years, with developing and newly industrialized countries expanding at an average 6,6%.

However the WB report as well as the IMF, warn that the United States galloping balance of payments deficit is becoming an increasing risk for developing countries should global misbalances be abruptly corrected.

With higher US interests and a stronger Euro WB expects the world economy to grow 3,1%, while developing countries and NIC will expand 5,7%.

International reserves of developing and NIC countries reached in 2004 a record 1,6 trillion US dollars, an additional 378 billion over 2003, with China holding 610 billion US dollars.

But the WB cautions that even when international reserves act as a safeguard for external shocks, keeping them too high for too long cause monetary exchange rate problems, which should make countries think if the are "sustainable and desirable".

The influx of capital to developing countries and NIC increased strongly in 2004, from 250 to 301 billion US dollars including 165 billion US dollars in direct investments.

"This influx is a welcome signal since it means interest in developing countries is returning", underlines WB Chief Economist Francois Bourguignon.