Preparing for tougher times
There is much that governments can do to protect recent social gains—but they will need outside help
IT WAS great while it lasted. In the five years from 2004 Latin America’s economies grew at an annual average rate of over 5%, inflation remained generally low, credit expanded and exports boomed. All this meant that the proportion of people living in poverty fell from 44% in 2002 to 33% this year, according to an estimate this week by the United Nations Economic Commission for Latin America and the Caribbean. Now the task facing the region’s policymakers is to limit the damage as the world economy deflates.
Until September Latin Americans could still hope that they would escape the worst of the downturn. Brazil’s economy, for example, grew by 6.8% in the third quarter compared with the same period last year, while Peru’s GDP expanded by 10% in the year to September. But in the past two months, Latin America has seen its stockmarkets crash, currencies wobble and credit start to dry up. That comes on top of falling exports and the plunge in the prices of the commodities it sells to the world. Twisting the knife, less money is being sent home by Latin Americans working abroad (see article).
This has sent economists scurrying to cut their forecasts time and again. As recently as October, the IMF expected growth in the region next year of 3.2%. This week the World Bank forecast 2.1%. The same day Morgan Stanley, an investment bank whose Latin American research team is among the more pessimistic about the region, cut its forecast for the seven largest economies in 2009 from growth of 1.5% to a contraction of 0.4%.
The average conceals wide variations. Brazil’s government still expects growth of 4% next year, though that looks optimistic. Mexico, hit by its close ties to the American economy, will be worse affected, but may manage growth of 0.4%, according to a poll of private forecasters by its central bank.
There is much that governments can do to protect recent social gains—but they will need outside help
IT WAS great while it lasted. In the five years from 2004 Latin America’s economies grew at an annual average rate of over 5%, inflation remained generally low, credit expanded and exports boomed. All this meant that the proportion of people living in poverty fell from 44% in 2002 to 33% this year, according to an estimate this week by the United Nations Economic Commission for Latin America and the Caribbean. Now the task facing the region’s policymakers is to limit the damage as the world economy deflates.
Until September Latin Americans could still hope that they would escape the worst of the downturn. Brazil’s economy, for example, grew by 6.8% in the third quarter compared with the same period last year, while Peru’s GDP expanded by 10% in the year to September. But in the past two months, Latin America has seen its stockmarkets crash, currencies wobble and credit start to dry up. That comes on top of falling exports and the plunge in the prices of the commodities it sells to the world. Twisting the knife, less money is being sent home by Latin Americans working abroad (see article).
This has sent economists scurrying to cut their forecasts time and again. As recently as October, the IMF expected growth in the region next year of 3.2%. This week the World Bank forecast 2.1%. The same day Morgan Stanley, an investment bank whose Latin American research team is among the more pessimistic about the region, cut its forecast for the seven largest economies in 2009 from growth of 1.5% to a contraction of 0.4%.
The average conceals wide variations. Brazil’s government still expects growth of 4% next year, though that looks optimistic. Mexico, hit by its close ties to the American economy, will be worse affected, but may manage growth of 0.4%, according to a poll of private forecasters by its central bank.
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