Latin America and the Caribbean remain resilient to a possible slowdown in world economic growth that could stem from a deepening of the debt crisis in Europe and a deceleration in China, according to the Inter-American Development Bank’s 2012 Macroeconomic Report released Sunday during the Bank’s annual meeting.
The report outlines two major potential economic risks the region could face in the next year: a faster-than-expected deceleration of China’s economy and deepening economic problems in Europe. Using a global economic model, the study concludes that even if both of these two major events were to occur, Latin America and the Caribbean might suffer only a relatively mild recession.
The study presented to the bank’s Board of Governors, “The World of Forking Paths,” offers a comprehensive analysis of potential risks affecting the region in the short and medium-term, providing an assessment of main macroeconomic vulnerabilities and strengths as well as policy recommendations.
“We are cautiously optimistic for Latin America and the
Caribbean. The region has grown strongly in the last couple of years and it has shown it is resilient to shocks,” said Santiago Levy, vice president for sectors and knowledge for the bank. “Most importantly, the region has developed a set of policy tools that have proven to be effective during economic downturns.”
The report notes that a number of countries, especially commodity exporters, have accumulated international reserves that would help cushion them from international financial turbulence and have reduced external liabilities.
Breaking with the past, most countries were able to implement effective fiscal stimulus packages to smooth the last downturn, and have gained valuable experience in countercyclical fiscal policymaking, said the report.
Most of the larger economies in the region have adopted flexible exchange rate regimes that make it easier for them to smooth fluctuations. And, several countries in recent years have implemented more sophisticated monetary policies and employed macro-prudential tools, such as the active use of Bank-liquidity requirements and measures to slow currency appreciation, which have all enhanced the region’s resilience against another possible international financial crisis.