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Positive Economic Outlook Projected for Latin America, Caribbean

International Monetary Fund forecasting above-average growth for 2005-2006

Posted: October 18, 2005

Anoop Singh
Washington -- The International Monetary Fund (IMF) projects a continuing positive economic outlook for Latin America and the Caribbean.

Anoop Singh, director of the IMF's Western Hemisphere department, said at an October 13 symposium in Bogotá, Colombia, that the region is projected to have a 4 percent economic growth rate in 2005 and a 3.75 growth rate in 2006, which he said are "well above historical averages." (See related article.)

Singh added, however, that growth is moderating in the region after reaching a 24-year high in 2004 of 5.5 percent.

The continued economic expansion in Latin America and the Caribbean "appears more resilient" than in previous upturns in the region, said Singh. He added that many countries in the area have "seized the opportunity" to reduce public debt by "implementing significant structural adjustments in their fiscal positions."

Mexico and countries in South America have gained, in particular, from a surge in the prices of fuel, food and metals around the world, Singh said. But the countries of Central America and the Caribbean have faced a more difficult growth challenge, in part because of pressures exerted by their higher oil import bills, he said.

Although the short-term economic outlook for Latin America and the Caribbean is generally positive, Singh pointed to "considerable differentiation" between countries in the region depending on individual economic and political circumstances. Global events could also affect regional economic expansion, he said, such as the possibility of a "sharper-than-expected slowdown of growth in key trading partners or international trade, possibly triggered by a continued surge in oil prices and/or rising protectionist sentiment."

Latin America and the Caribbean also remain vulnerable to an abrupt tightening of global financial-market conditions, said Singh.

The IMF official said that, despite the strong increase in world oil prices, inflation in the region is expected to drop from 6.5 percent in 2005 to 5.5 percent in 2006. This projected decline partly reflects the region's "prudent stance of monetary policies," he said. He cited Colombia as a case in point: inflation in that country declined from 6.5 percent during 2003 to 5 percent in September 2005 -- the lowest level in decades.

China accounted for 7 percent of the increase in Latin American and Caribbean exports over the past two years, added Singh. He said this "modest figure" masks the importance of China for some key Latin American exports, such as copper and soybeans. Singh explained that China's robust economic growth has spurred higher prices for these products and benefited exporters in such South American nations as Argentina, Brazil, Chile and Peru.

China's "thirst" for natural resources has also boosted oil prices -- benefiting net oil exporters such as Colombia, Ecuador, Mexico, Venezuela, and Trinidad and Tobago -- and has the potential to increase China's investments in Latin America, he observed.

Global economic growth is projected to remain at 4.25 percent in 2005 and 2006, said Singh. This reflects, in part, the resilience of the U.S. economy in the face of recent hurricanes and high oil prices, he said.

U.S. Commerce Secretary Carlos Gutierrez said September 20 that in view of heightened global competition, the nations of the Western Hemisphere must aggressively pursue opportunities for growth. Speaking before the U.S. Chamber of Commerce, Gutierrez urged hemispheric governments to help establish the proposed Free Trade Area of the Americas, which would eliminate trade barriers throughout the region. (See related article.)

Gutierrez also praised the U.S.-Central America-Dominican Republic Free Trade Agreement (known as CAFTA-DR) as "an enormous step forward in the process" of greater regional integration. For more information about CAFTA-DR, see Central America Free Trade Agreement-Dominican Republic.

For additional information, see the October report, Global Context and Regional Outlook for Latin America and the Caribbean (PDF, 48 pages), available on the IMF Web site.




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