Slow-Growing Brazil Is Holding Back LatAm’s Expansion

Latinamerica is the developing region which will expand less in 2006 – below Asia and Africa – with 3.9%, said United Nations Undersecretary-General José Antonio Ocampo on presenting the latest edition of the UN World Economic Situation and Prospects.

According to the report, global growth will reach 3.3% in 2006 with developing economies the most dynamic, particularly China that is forecasted to have a GDP 8.3% expansion and India, 6.8%.

This means developing economies will grow an average 5.6% this year while developed countries 2.5%. Latinamerica with 3.9% will remain relatively behind compared to Africa’s 5.5%, Southeast Asia 6.5% and western Asia 5.1%.

In Latinamerica Argentina will lead with a 6% expansion, followed by Chile and Venezuela with 5.5%; Peru 5% and Colombia and Uruguay 4.5%. However the two largest economies of the region, Mexico and Brazil will grow a modest 3.5 and 3%.

Precisely, according to Mr. Ocampo, it’s the two leading economies that are keeping the region "lagging". In Brazil the main problem is the restrictive monetary policy which was effective until mid 2005. Changes since are beginning to take effect but the impact on slower growth already exists.

In Mexico’s case the country has still to adapt to the strong manufacturing competition from China, added Mr. Ocampo who admits a positive solution is possible in the near future, "but not immediately".

Furthermore Latinamerica continues strongly dependent on the international commodities market, and "has been unable to incorporate technology intensive manufacturing, which is the key to success in Asia".

"Commodities are positive if current high prices remain strong but history shows us that they are the least dynamic elements of world trade", underlined Mr. Ocampo.

Latinamerica experienced a strong rebound in 2004 posting a 5.6% growth but has since slid into a gradual descent with 4.1% in 2005 and 3.9% forecasted for this year.

In 2005 performance was uneven with strong growth in energy and mineral exporting countries such as Chile, Colombia, Peru and Venezuela. Ecuador in spite of being an oil exporter missed the trend because of domestic factors such as lack of investment in the industry.

On the other end some countries in Central America and the Caribbean net importers of oil, suffered the full impact of high energy prices, even when Venezuela softened the situation by granting oil at preferential conditions.

Unemployment in the region has improved with 9.3% in 2005, the lowest since 1997, with poverty also dropping from 41.7% in 2004 to 40% last year.

The report, which is compiled annually by a host of U.N. agencies, saw growth in 2006 as similar to that of 2005, which has yet to be firmly established with U.S. fourth-quarter data due on Friday, January 27.

Growth is forecasted to continue to cool from the historically high pace of 4% in 2004 using the market exchange rate method. Some banks see world economic growth in the range of 3.5 to 4% in 2006.

The U.N. report anticipates U.S. growth at 3.1% in 2006 in market exchange rate terms, with European expansion at 2.1% and Japan’s at 2%.

Mercopress – www.mercopress.com

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