MercoPress. South Atlantic News Agency

Latinamerica forecasted to contact 1.7% with mild recovery at end of 2009

Less trade flows, remittances and tourism is heavily impacting on Latam

Latinamerica will experience this year a 1.7% contraction (negative growth), the first time since 2002, basically because of a severe fall in global trade and remittances according to the United Nations Economic Commission for Latinamerica and the Caribbean, CEPAL.

This is a greater contraction than the previous March forecast from CEPAL and the first since the 0.4% contraction of 2002. The situation is in deep contrast with the 4.6% expansion of 2008, says the report released on Wednesday in Chile.

CEPAL anticipates that recovery could begin in the second half of 2009 but starting from a much lower floor than in the first half year of 2008

“The strong reduction of demand, both domestic and external in the fourth quarter of 2008 and first quarter of 2009, impacted on the economies of Latinamerica and Caribbean countries. Based on this CEPAL estimate that the region’s GDP will contract 1.7% in 2009” says the report.

The region is suffering a significant fall in world trade flows, deterioration of exchange terms, a serious drop in remittances, all of which contributed to the strong regional growth of recent years, adds CEPAL.

The UN economic office seated in Santiago de Chile said that trade flows to and from the region with the rest of the world will contract at least 15%, plus the fact that imported goods will be dearer than exports.

Mexico, Brazil, Costa Rica and Paraguay are the countries signalled as the most affected, with contractions estimated between 0.5% and 2%.

CEPAL points out to the “significant uncertainty about the evolution of the global crisis and the deterioration of recovery expectations”, which have contributed to a further impact regional economies.

The influenza A/H1N1 virus has also added to the bad news for the tourism and services sectors particularly because of a significant retraction in visitors from developed countries.

However the good news is that contrary to previous crisis, “Latinamerican countries are better prepared, less indebted, have greater international reserves and most financial systems have a limited external exposure”.

“This time it is not financial problems that have hit the region, but rather from the real economy”, underlines CEPAL.