Spanish bank BBVA Studies Group increased its 2010 growth forecast for Latinamerica to 5.8% (from 5.2%) mainly because of the strong showing of domestic economies boosted by stimuli packages. The report also praised the performance of all four Mercosur full members (Argentina, Brazil, Uruguay and Paraguay) with their economies expanding over 7.5%.
“Things in Latinamerica have rolled much better than expected” in an international context which still faces some turbulences resulting from the prolonged slowdown which begun in late 2008, according to Joaquin Vial, BBVA chief economist for South America
Vial said that besides domestic demand, the booming international prices of commodities have attracted a massive inflow of capital and an overall appreciation of the region’s currencies.
Domestic demand stimuli was followed by a strong consumers and investors confidence reaction, together with a favourable evolution of employment, which helped to begin a gradual withdrawal of fiscal and credit incentives.
In this scenario the countries which currently have the best growth prospects are Paraguay, 10.1%; Uruguay, 8.8% and Peru, 8.5%. Argentina is poised to expand 8%; Brazil 7.5%; Panama, 6% while the only country that could end the twelve months with an economic contraction is Venezuela, probably 2.3%.
Nevertheless BBVA economist Vial believes the rate of downfall in Venezuela has diminished considerably and should be in a recovery process given the bullish prices for oil, the country’s main export.
Economist Vial forecasts that growth in Latinamerica will remain strong next year, in the range of 4.2%, and in following years could stabilize at an average 4.5%. However he points out to some weak points mainly taking control of the fiscal deficit which on average has dropped to 2% of GDP and is far above what can be considered desirable, “given the excellent international prices for commodities”.
Vial recommends governments of the region adopt “more active” fiscal policies to avoid central banks having to adopt additional measures to help prevent an excessive appreciation of local currencies.