Saturday, September 04, 2010

Latin America Surges Forward in the Face of the Continued Global Recession

Sources: La economía peruana crecerá más de 6% este año, aseguró la ministra Mercedes Aráoz Mexico’s Economy Expands in Second Quarter Serasa: economia brasileira desacelera no 2º trimestre Peru and Chile Will Lead Latam Expansion in 2011 with 6% Growth Each Argentine Economic Activity Expands 11.1% in June Over a Year Ago Venezuela Economy Down 3.5 pct in First Half 2010

Despite the fact that most of the world has still not completely shaken off the global recession, Latin America has clearly set itself apart as countries across the region are experiencing their best growth rates in years. The International Monetary Fund (IMF) is predicting that Chile’s economy will expand by 6% this year (in terms of Gross Domestic Income). This growth is thanks to effective reconstruction spending following the massive earthquake on February 27 of this year and a rise in commodity prices. This growth will far outstrip the IMF’s prediction for global expansion of only 4.2% for the year.

Peru and Mexico are experiencing equally impressive levels of growth as well. Standard & Poor’s is predicting growth of 7.5% (in terms of Gross Domestic Product) for the year in Peru, though the Peruvian government is predicting only 6%. Peru is also benefiting from high commodity prices, but the Minister of Economy credits higher domestic demand and private investment as the main source of growth. The Bank of Mexico is predicting an annual growth rate between 4-5% (GDP) this year driven by a strong recovery in the country’s manufacturing sector. Mexico’s economy expanded at the fastest rate in over a decade in the second quarter this year.

The industrial sector pushed Brazil’s growth to 8.4% (GDP) in the first half of 2010 compared to the first half of 2009, and the IMF is predicting a growth rate of 4.1% (GDP) for the year. Ironically, like most of Latin America, second-half growth rates will likely decline in Brazil due to the fact that the country had already exited the recession and was again experiencing growth by the end of last year, making the year-to-year comparison less favorable. Even Argentina, a country with a less-than-stellar economic record since its 2001 economic collapse, saw growth of 11.1% (GDP) in June 2010 as compared to June 2009 after an excellent agricultural harvest.

One country bucking the growth trend is Venezuela. The Venezuelan economy shrank 3.5% (GDP) in the first half of 2010 after shrinking 3.3% in 2009. The government blames its financial woes on low global oil prices (oil makes up 95% of Venezuela’s export earnings), while government critics blame the country’s socialist economic policies and low consumer demand and investment for the poor showing.

1) After famously suffering through the “Lost Decade” of the 1980’s many Latin American countries have shifted to more democratic governing systems and have experienced subsequent economic growth. Does the fact that Latin America appears to have already exited the global recession and returned to the excellent growth rates it had been experiencing in recent years signal that the region as a whole is on a path to first-world status, or should the world continue to be wary of the historically troubled region?

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