Latin America Seeing Strong Growth, Rising Inflation
Latin America is poised for what could be its fifth consecutive year of strong economic growth in 2008, according to the International Monetary Fund.
But inflation, after falling to an historical low for the region in 2006, is edging up in several countries, the IMF said in its Regional Economic Outlook for the Western Hemisphere.
So far, Latin America and the Caribbean seem to have weathered the fallout from the global financial turbulence that has its roots in the decline in the US housing markets. But the problems in financial markets, which began last summer, have “significantly increased downward risks” for the region, the IMF said in its semiannual report. The main sources of that risk include weaker external growth, with its attendant impact on commodity prices, and possible further tightening in U.S. and world credit markets.
Beyond the external conditions, the IMF said, the sustainability of the Latin American expansion will also depend on preserving the strength of underlying fiscal positions in the countries and the resilience of domestic financial sectors. The report noted that strong fiscal and external current account surpluses are beginning to shrink as public spending accelerates and imports rise.
Overall, the IMF predicts that growth in the region will be about 5 % in 2007, moderating to about 4ΒΌ percent in 2008. The decrease projected for next year reflects a less favorable external environment, and capacity constraints in some countries.
Still, if developments turn out as expected, 2008 would be the fifth year in a row that growth has exceeded 4%, Latin America’s best performance in decades.
In a few countries, energy shortages could also create risks to the growth outlook and many nations are facing food price shocks that heighten inflation risks. Overall, inflation in Latin America and the Caribbean is expected to rise from 5.0% last year to 5.4% this year and 5.7% next year.
The IMF report also projected that both the current account surpluses and the fiscal surpluses, which had been a source of stability, will shrink this year and next.
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