MercoPress. South Atlantic News Agency

Latam prospects conditioned to commodity prices

Latin American economic growth may slow more than expected in 2009 due to lower prices for the commodities that drive many of the region's economies, the International Monetary Fund said this week in Chile.

In early October IMF said that economic growth in Latin America would slow to about 3.2% in 2009, but prices for many commodities and oil have fallen even more steeply since those forecasts were compiled. "It may fall below what we estimated. The risks are more to the downside than the upside," said David Robinson, deputy director of the IMF research department during a presentation to Chilean authorities of the regional economic outlook for Latin America. "Generally speaking, on average, and of course this varies across countries, a 10% drop in commodity prices reduces growth by about 3/4 of a percentage point," he said. However he said Chile had reacted well to the crisis and had one of the best policy frameworks among emerging markets in the world. The likely end of what many have called a global commodities super-cycle now threatens to hit Latin America harder than other parts of the world, cutting export revenue and pressuring government spending plans. Argentina, Brazil and Colombia, for example, have seen prices fall for key food exports such as soy products, corn and coffee. Prices for copper, a main pillar of Chile's stellar economic growth in recent years, ended this week to levels in the range of 1.60 US dollars, not seen since 2004. "The risks to the growth projections are to the downside. That's true of global projections, the US projections, and the Latin America projections and one reason for that is precisely the downside risk on commodity prices in the case of Latin America," Robinson said in Santiago. "In these circumstances, prospects are of an acute deceleration of the global economy, in with growth rate will fall to its lowest since the 2001/2002 recession", said the IMF official. Robinson said the impact from falling commodity prices would vary from country to country, adding that Latin America's economies have significant reserves saved from the long price boom. He said, for example, oil-exporting economies would be harder hit than the countries of Central America and the Caribbean, which would welcome lower fuel prices. Robinson said there was already evidence in the region that domestic financial markets in many countries are beginning to come under pressure, with credit growth slowing and yield spreads on sovereign debt widening. He urged countries to remain vigilant in key areas including maintaining liquidity, bolstering financial stability, monetary policy and fiscal policy and targeted social assistance policies. Regarding world recovery prospects Robinson said it can be expected to bounce back in the US in the second half of 2009, "but it will be more gradual than in other occasions, given the exceptional adjustment of asset prices (housing sector)". "Overall advanced economies will remain flat or below until at least the second half of next year" and as consequence of this slowdown and turbulence Latam will face several "negative shocks", credit drought, risk adversity by investors and weaker foreign demand.