Economic growth in Latin America and the Caribbean will slow down next year due to the sluggish performance of the world economy and uncertainty and volatility of financial markets, warns a United Nations report released this week.
The report estimates that growth in the region will drop to 3.7 per cent in 2012, compared to 4.3 per cent this year.
Although growth had already slowed down from 5.9 per cent in 2010, the report states that most of the region showed “a positive performance thanks to a favorable external situation.” However, an increase in volatility and uncertainty during the second half of the year significantly complicated the global economic environment.
In particular, the report, which was produced by the U.N. Economic Commission for Latin America and the Caribbean, points to the current state of the euro as a key factor that could contribute to economic uncertainty in the region.
“There is a great possibility of a deep crisis in the Eurozone, which would significantly affect the global economy overall and would impact our region primarily through the real channel – exports, prices, foreign investment, remittances and tourism – and the financial channel, greater volatility, possible capital outflows and difficulties in accessing credit,” said Alicia Bárcena, executive secretary of the commission, while presenting the report.
The report also stresses that future growth will be intricately tied to the economic performance of developed countries, and a drop in their level of activities would result in a fall in demand for goods, negatively affecting regional exports and the prices of principal export products.
The region’s high level of reserves and low levels of public debt – except for a few Caribbean countries – are strengths that would enable it to better face the economic downturn next year, says the report.
The reserves would allow countries to finance a deficit in the current account, and the relatively low debt would make room for countercyclical fiscal policies, allowing an expansionary monetary policy.
However, not all countries face the same economic or political circumstances. In many, there are fewer opportunities for anti-crisis policies than before the crisis three years ago, and measures would not be as powerful as they were then, according to the report.
Growth also varies within the region with South American countries showing the most growth this year at 4.6 per cent, followed by Central America with 4.1 per cent. However, the Caribbean nations grew only 0.7 per cent.