Latin American economies are becoming economic leaders

Since the U.S.-led credit crunch of 2008 the worldwide economy has been fairly volatile and, indeed, Europe has been subjected to a double dip recession. The U.S. authorities seem unable to agree on a long-term financial strategy.  The U.S. government debt ceiling has not been increased permanently and within Europe there is infighting among European members.

pressure could be put on services and products pushing inflation higher

This then gives the authorities a quandary. In order to combat inflation, they would probably need to increase interest rates although this would reduce the amount of credit available to consumers and could lead to a slowdown in spending. On the other hand, if governments around Latin America see their economies weakening in the short- to medium-term they could reduce base rates, make consumer credit more available at better rates but this would feed the monster that is inflation.

Many European governments have had this quandary on numerous occasions in the past. While some have handled the situation very well, others have struggled. The consensus is that Latin America will maintain this growth path in the short- to medium-term and will in the longer term become an economic powerhouse. Brazil is heading towards the higher echelons of economies around the world.  México was recently confirmed as the 10th largest economy in the world and more growth is expected across the region.

The economic prosperity of Latin America is not necessarily at risk at this moment, although governments need to be aware of the double risk of a slowdown in economic growth and the monster which is inflation. Tackling these two issues will need kid gloves, will be something of a balancing act and may take some time to perfect.

The region as a whole is now far stronger as an economic area than it ever has been, more and more trade agreements are being negotiated with overseas partners, and many people believe that Latin America will soon be challenging Europe as one of the leading economic regions of the world.

Massive progress has been made since the early 1990s when Brazil was on the verge of bankruptcy. The area has managed to avoid the worst of the worldwide economic downturn experienced since the 2008 U.S. credit crunch, and the standard of living for many people in the region has increased dramatically. There may be some tricky periods ahead for Latin American governments, but they have shown themselves to be more proactive than reactive which bodes well for the future.

*Provided by the Latin America Forum

In many ways this has played into the hands of Latin America where an array of countries have benefited, shown exceptional financial planning and attracted significant investment from North America, Europe and the Far East.

Can the Latin American economic boom continue?

Many countries across Latin America are forecast to show economic growth of around 4 percent or above during 2013 which is exceptional compared to Europe and North America where many countries are struggling to maintain positive growth. Brazil is leading the charge. México is increasing its influence on the worldwide trading arena, and even countries such as Costa Rica have played their part. But can this boom continue?

It seems almost certain that this ongoing economic boom will continue at least while Europe and North America continue to struggle. Exports are up, economies are growing, unemployment is under control and the standard of living for many people in Latin America is better than they have ever seen. It is fair to say that Latin America is seen by many people as something of a safe haven with regards to investment, and the growing wealth of the local population has not gone unnoticed.

Costa Rica is expected to grow by 4 percent, as forecast by the World Bank, during 2013 although behind-the-scenes this is a reduction on the original 4.8 percent forecast by the Banco Central. There is a similar trimming of economic forecasts elsewhere. While this does not signal the end of the economic boom, it is worth noting.

The Costa Rica authorities have been very quick to realize that investment by foreign companies is all good and well for the domestic economy, but this has led to a significant strengthening of the local currency. The higher this currency moves, the less competitive Costa Rica is on the international trading arena which could, if left unattended, lead to a slowdown in economic growth.

The Banco Central has already put in place some regulations, and the executive branch has proposed legislation to limit foreign investment in the short- to medium-term.  This should at worst check the ongoing strength of the currency and at best lead to a reduction in exchange rates.

This is a scenario which is likely to be replicated across Latin America and is one of which governments need to be fully aware. The problem is that by reducing foreign investment this could place pressure upon domestic economic growth in the short term, but allowing overseas investment to continue at current rates could push the currency exchange rate higher and slow exports. This is a delicate balancing act by any stretch of the imagination.

Historically inflation has been the monster haunting Latin America and has on a number of occasions been the catalyst for economic collapse. Over the last few years, since the collapse of Brazil in the 1990s, inflation has been very much under control and is still relatively stable today. However, as standards of living improve, household wealth increases and disposable incomes reach levels not seen for many years more pressure could be put on services and products pushing inflation higher

This then gives the authorities a quandary. In order to combat inflation, they would probably need to increase interest rates although this would reduce the amount of credit available to consumers and could lead to a slowdown in spending. On the other hand, if governments around Latin America see their economies weakening in the short- to medium-term they could reduce base rates, make consumer credit more available at better rates but this would feed the monster that is inflation.

Many European governments have had this quandary on numerous occasions in the past. While some have handled the situation very well, others have struggled. The consensus is that Latin America will maintain this growth path in the short- to medium-term and will in the longer term become an economic powerhouse. Brazil is heading towards the higher echelons of economies around the world.  México was recently confirmed as the 10th largest economy in the world and more growth is expected across the region.

The economic prosperity of Latin America is not necessarily at risk at this moment, although governments need to be aware of the double risk of a slowdown in economic growth and the monster which is inflation. Tackling these two issues will need kid gloves, will be something of a balancing act and may take some time to perfect.

The region as a whole is now far stronger as an economic area than it ever has been, more and more trade agreements are being negotiated with overseas partners, and many people believe that Latin America will soon be challenging Europe as one of the leading economic regions of the world.

Massive progress has been made since the early 1990s when Brazil was on the verge of bankruptcy. The area has managed to avoid the worst of the worldwide economic downturn experienced since the 2008 U.S. credit crunch, and the standard of living for many people in the region has increased dramatically. There may be some tricky periods ahead for Latin American governments, but they have shown themselves to be more proactive than reactive which bodes well for the future.

*Provided by the Latin America Forum

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