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World Bank warns a ‘hard landing’ in China would have great impact in Latam

Tuesday, August 16th 2011 - 05:52 UTC
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Augusto de la Torre said the bank it keeping its 2011 outlook for the region at 4.5% economic growth   Augusto de la Torre said the bank it keeping its 2011 outlook for the region at 4.5% economic growth

The World Bank's chief economist for Latin America and the Caribbean said Monday that the bank is maintaining its 2011 outlook for the region's economic growth at about 4.5% despite concerns of a new global crisis.

Augusto de la Torre, told reporters following a presentation at the Central Reserve Bank of Peru that the 2012 economic outlook for the region is more uncertain as a result of the economic problems in the United States and Europe.

De la Torre said one of the main concerns for the region would involve a steep decline in growth from China resulting in both a drop in demand for Latin American commodities and a collapse in their prices.

“If China has a hard landing, that will hit us hard,” the economist said.

Government officials from South America have been meeting to discuss ways to protect the region from a possible crisis. Finance ministers from the Union of South American Nations, Unasur, have pledged to strengthen trade in the region and with Asian countries and consider creating a common reserve fund.

De la Torre warned that increasing intraregional trade should not be seen as a substitute to trade with other regions, but instead a compliment.

“Good trade with the world boosts the interconnection in the region and the [good] connections in the region boost the potential capacity with the world. It is not one or the other,” De la Torre said.

De la Torre said Peru, which has been one of the world's fastest growing economies, has good fundamentals to maintain growth. He said that for Peru to continue growing in the long term, the country will need to increase investments in infrastructure and human capital in order to create a more flexible economy.

Peru's economy expanded by 8.8% in 2010 and is expected to grow by about 6.5% this year

Earlier in the month de la Torre had warned that Latin American economies have developed strong immune systems against global contagion but a worsening of the current market turmoil could put ‘those defences to the test’.

“Over the last 20 years the region has experienced a silent economic revolution that has provided a shield against external shocks, as we have witnessed in the previous crisis and those reforms are still in place ,” de la Torre noted.

But he warned that a worsening of the current turbulence -”a global turmoil of immense magnitude”, he said- could impact Latin America’s ability to grow. “Not even the best immune system in the world could withstand these kinds of attacks,” he noted.

“Latin America could absorb the financial shocks from the global turmoil through greater exchange rate flexibility, maintaining reasonable growth rates,” he said.

Mindful of potential ravaging effects of economic downturns on the poor, de la Torre noted that in the last decade 60 million Latin Americans were lifted out of poverty thanks to strong social protection networks set up by most countries in the region. “We believe that if the situation worsens the most vulnerable will be shielded, in part thanks to the existence of these structures,” he said.

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  • GeoffWard2

    So, do you really think - as Mercopress suggests - that the South American 'poor' will be shielded by 'the bolsa' if China experiences 'a hard landing'?

    Politically it would be good to protect the 'poor' but, in this circumstance, this could only be sustained by hitting hard the middle-class and new-middle-class....... political suicide.

    No, all will take the hit; all S.A. nations will take the hit; some will be on their knees and a very few will come through it intact.
    Other parts of the world will suffer in different ways - the Developed world in one way, the Developing world in a number of other ways.

    One thing we can be sure about - the corollary to this extreme concentrating of world production is the extreme effect of anything that goes wrong in the zone of concentrated production. Countries whose burgeoning economies are massively dominated by raw materials supply will be hugely exposed. Lithium-based economies may be the most resilient of the raw-materials-economies.

    Aug 17th, 2011 - 10:34 am 0
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