MercoPress. South Atlantic News Agency

Latam poised for stronger growth in 2013 pushed by Brazil and Argentina

ECLAC head Alicia Bárcena said the challenge now is for deep structural change and slowing domestic demand stimuli

Latin America and the Caribbean will experience stronger economic growth, despite ongoing uncertainties at international level (particularly difficulties faced by Europe, the United States and China), according to new estimates released Tuesday in Santiago de Chile, by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).

According to the ‘Preliminary Review of the Economies of Latin America and the Caribbean 2012’, announced by Alicia Bárcena, Executive Secretary of ECLAC, in 2013 the region is poised to grow an estimated 3.8%, mainly because of Argentina and Brazil economies recovery, as well as ongoing buoyant internal demand in several countries.

The region will end 2012 with GDP growth of 3.1%, which is higher than the figures for world growth (2.2%), but lower than the 4.3% posted in 2011. This shows that the world economic crisis had a negative but not dramatic impact on the continent, as the region maintained a certain resilience to external shocks throughout the year.

Despite the above, the ECLAC document states that Latin American and Caribbean economies remain largely dependent on world economic trends in 2013. The most likely scenario is that slow growth (and even recession in some cases) will continue in Europe during 2013, although this might also give rise to agreements that could gradually lead to a resolution of the financial, fiscal and competition imbalances that are currently in place.

In the United States, the probability of fiscal agreement increased following the recent presidential elections. China could post higher growth rates this year or maintain current levels, depending on the extent to which it manages to boost internal demand and keep inflationary pressure under control, at the same time as recovering export growth. It is hoped that oil will not become an additional cause of instability because of geopolitical reasons.

Strong domestic demand in many of the region's economies will result from improved labour indicators, increased bank credit to the private sector and rising commodity prices that will not fall significantly despite high external uncertainty.

Caribbean countries will remain fiscally fragile, and will require reforms accompanied by external support to ensure sustainable fiscal consolidation trajectories.

“The challenge for Latin America and the Caribbean is still to increase and stabilize investment growth and not to depend exclusively on domestic consumption as a means of driving structural change with equality, incorporating technical progress and delivering sustainable growth” pointed out Alicia Barcena.

In 2012, recession in Europe (resulting from financial, fiscal and competitiveness imbalances) combined with the slowdown in China and modest growth in the United States are expected to produce a significant deterioration in the world economy. Growth rates of world trade and output fell, capital inflows to developing countries shrank and volatility increased.

The main impact of global deterioration on Latin America and the Caribbean was in trade as growth in the region's export values fell sharply from 23.9% in 2011 to an estimated 1.6% in 2012.

The regional performance was affected by slower growth in two of the region's largest economies: Argentina (2.2% in 2012, compared with 8.9% in 2011) and Brazil (1.2% compared with 2.7% in 2011), as these account for about 41.5% of regional GDP. In 2013, both countries are expected to post a recovery with 3.9% for Argentina and 4.0% for Brazil.

According to ECLAC Preliminary Overview, Panama will remain the region's fastest growing economy in 2012 (an estimated 10.5%), followed by Peru (6.2%), Chile (5.5%) and the Bolivarian Republic of Venezuela (5.3%). Paraguay, Saint Kitts and Nevis and Jamaica will contract (by -1.8%, -0.8% and -0.2%, respectively), while Mexico will grow 3.8%. Central America as a whole will grow by 4.2%, South America by 2.7% and the Caribbean by 1.1%.

The study adds that, given weakened external demand in the wake of the international crisis, the region's growth was based on expanding domestic demand on the back of rising wages and credit, which is partly attributable to monetary or fiscal policy in most countries.

Employment and wages rose in 2012, and there was a larger reduction in unemployment among women (-0.3 percentage points from the simple average of countries with information available) than among men (-0.1%). For the region as a whole, the urban unemployment rate went from 6.7% in 2011 to 6.4% in 2012, which is a significant figure in the context of a slowing world economy.

Throughout the year, worldwide financial instability reduced inflows of short-term capital and increased exchange-rate volatility in the region's two largest countries (Brazil and Mexico), while upward pressure on currency appreciation decreased. In the fiscal sphere, the gap between income and expenditure widened in most countries (with a few exceptions), due to a higher increase in spending (1.5 percentage points of GDP) than in income (one percentage point). The overall fiscal deficit in Latin America expanded from 1.6% of GDP to 2.0% of GDP and in the Caribbean from 3.6% to 4% of GDP.

The report added that investment played a less significant role in the increase in growth in 2012 than in 2011, mainly because of reduced investment in Argentina and Brazil. However, the region's average investment ratio stood at 22.9% of GDP in 2012, which is the highest rate recorded since 1981.