Latin America’s economic outlook to
infinity and beyond
Juan Carlos Moreno Brid
Deputy Director
ECLAC - Mexico
JAWAHARLAL NEHRU UNIVERSITY,
New Delhi, January 2012
Global growth has slowed sharply
after the recovery from the crisis
WORLD GDP GROWTH RATES, 2009-2012
(Percentages)
e/ Estimate. p/ Projection.
And volatility and uncertainty
increased in 2011
EUROPE (SELECTED COUNTRIES): FIVE-YEAR CREDIT DEFAULT SWAP
RISK PREMIUMS, 2009-2011
(Basis points)
600
4000
3500
500
3000
400
2500
300
2000
1500
200
1000
100
500
0
2009 II
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
0
Portugal
Ireland
Greece
Italy
Spain
France
Germany
Latin America’s export growth of
volumes is slowing
VOLUME OF WORLD EXPORTS BY REGION, 2007-2011
(Annual growth rates, three-month moving average)
And also the prices for its main exports
GLOBAL COMMODITY PRICE INDEXES, 2002-2001
(Index: annual average price for 2002=100)
In LA Terms of trade were favorable for
much of 2011
LATIN AMERICA: TERMS OF TRADE, 2005-2011
(Index: 2005=100)
150
140
130
120
110
100
90
2005
2006
2007
Latin America
Exporters of mineral products
Central America
2008
2009
2010
MERCOSUR
Exporters of hidrocarbons
Mexico
2011
Import volumes and prices grew fast
LATIN AMERICA: ESTIMATED VARIATION IN THE VALUE OF IMPORTS
BY VOLUME AND PRICE, 2011
(Percentages)
10.3%
Latin America
12.9%
11.2%
MERCOSUR
15.9%
Exporters of mining products
14.4%
Exporters of hydrocarbons
14.2%
12.9%
14.5%
11.3%
Central America
7.0%
Mexico
0%
12.1%
9.8%
10%
20%
Volume
Price
30%
40%
And international reserves soar
LATIN AMERICA AND THE CARIBBEAN: INTERNATIONAL RESERVES
(Millions of dollars)
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
2001
2002
2003
2004
2005
Brazil
2006
2007
2008
Regional total
2009
2010
2011-Oct
Fiscal deficit shrunk due to less G more T
LATIN AMERICA (19 COUNTRIES): CENTRAL GOVERNMENT FISCAL INDICATORS, 2000-2011
(Simple averages as percentages of GDP)
24
10.0
22
8.0
6.0
20
4.0
18
2.0
16
0.1
0.3
0.0
-0.4
14
-1.0
-1.8
12
-2.5
-3.1
-2.8
-2.9
2002
2003
-1.5
-1.9
-2.9
-2.0
-4.0
10
-6.0
2000
2001
Overall balance (Right axis)
2004
2005
2006
2007
Total revenues (left axis)
2008
2009
2010
2011
Total expenditure (left axis)
Public debt came down again and its composition
continued to shift
LATIN AMERICA (19 COUNTRIES): CENTRAL GOVERNMENT PUBLIC DEBT BALANCE, DOMESTIC AND
EXTERNAL
(Percentages of GDP)
Inflation rose but it is still low
LATIN AMERICA: COMPONENTS OF INFLATION, JANUARY 2007 – NOVEMBER 2011
(12-month inflation rate, simple averages)
14%
12%
10%
8%
6%
4%
2%
0%
January
March
May
July
September
November
January
March
May
July
September
November
January
March
May
July
September
November
January
March
May
July
September
November
January
March
May
July
September
November
-2%
2007
2008
Food
2009
Core inflation
2010
2011
Others
And what happens to output and the
current account?
In the third quarter, the slowdown in
growth began to steepen
LATIN AMERICA: QUARTER-ON-QUARTER GROWTH IN GDP,
SEASONALLY ADJUSTED SERIES
(Percentages)
All demand components slack since mid
2010
LATIN AMERICA: GDP AND DOMESTIC DEMAND COMPONENTS, 2010-2011ª
(Dollars at constant 2005 prices, change over year-earlier period)
30
30
20
20
10
10
0
0
-10
-10
-20
-20
QI
Q II
Q III
Q IV
2009
Private consumption
Investment
Imports of goods and services
a/ Estimate.
QI
Q II
Q III
2010
Q IV
SI
S II
2011
General government consumption
Exports of goods and services
GDP
Growth slowed from 5.9% in 2010 to
4.3% in 2011 and will …
LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH RATES, 2011
(Percentages)
Panama
10.5
Argentina
9.0
Ecuador
8.0
Peru
7.0
Chile
6.3
Colombia
5.5
Uruguay
5.5
Bolivia(Plur. State of)
5.1
South America (10 countries)
4.6
Dominican Republic
4.5
Nicaragua
4.5
Haiti
4.5
Latin America and the Caribbean
4.3
Venezuela(Bol. Rep. of)
4.2
Central America (9 countries)
4.1
Paraguay
4.0
Mexico
4.0
Costa Rica
3.8
Guatemala
3.3
Honduras
3.2
Brazil
2.9
Cuba
2.5
El Salvador
1.4
Caribbean
0.7
0
2
4
6
8
10
12
But the current account deficit
widens
CURRENT ACCOUNT STRUCTURE
(Percentages of GDP)
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
2006
2007
2008
2009
2010
Goods balance
Services balance
Current transfers balance
Current account balance
2011
Income balance
2012
Short term capital and FDI finance
current account deficit
LATIN AMERICA (SELECTED COUNTRIES): CURRENT ACCOUNT BALANCE
AND COMPONENTS OF THE FINANCIAL ACCOUNT, 2011
(Miillions of dollars)
85,000
65,000
45,000
25,000
5,000
-15,000
-35,000
-55,000
Argentina
Brazil
Chile
Colombia
Current account balance
Net prtfolio flows
Mexico
Peru
Venezuela
(Bol. Rep. of)
Central
America,
Dominican
Rep.,
Haiti
Net foreign direct investment
Change in international reserves
Other South
American
countries
Currency appreciation continued…
LATIN AMERICA AND THE CARIBBEAN: REAL EFFECTIVE EXTRAREGIONAL EXCHANGE RATES, 20082011
(Index: average for 1990-2009 = 100)
Scenario for infinity and beyond
• In 2012
• ECLAC’s baseline scenario: economic growth will
continue to slacken, now o 3.7% in 2012)
And to infinity (-2012) and
beyond?
Two visions on long term growth’s
determinants
• As long as inflation, fiscal deficits and stae
interventions are under control, low and
preferably zero.. Growth will eventually boom
• Above conditions are necessary but
insufficient . Key and somewhat different
constraints bind the various Latin American
countries’ growth . In
One lens: the BPC growth model
• Harrod, Prebisch, Thirlwall, Gap models
– Long term growth must be consistent with a
sustainable balance of payments
• (vs Lawson, Corden at al Does the Current Account
matter?)
• BPC Specifications: levels or ratios, trade and
factor payments from abroad
• X – M = 0, (X – M) / Y ≤ k, interest, remittances
• GNP = GDP + Net Factor Payments from abroad and
terms of trade effects
Thirlwall’s model of BPC growth
Income elasticity of
imports
Income elasticity of
imports
External
demand
Effect of real exchange
rate cum price
elasticities of trade
When Z slows down the BPC becomes
more binding.
Plan A
Deflate and devalue …and stagnate some time
Plan B
i) Diversify external demand
ii) Rely more on domestic market…change trade
elasticities (composition of X and Q)
industrial/trade policy, Y-distribution
+ investment private and public
iii) Shift real exchange rate
24
Plan C Apply the BPCC model
B ring in,
P ray for,
C onvince
C apital inflows to increasingly keep
coming to finance your current account,
maybe default
25
But if PLAN A, B and C (combined
or not) fail and the current account
deficit keeps increasing as a share
of GDP…then wait for
The Casablanca Conclusion
“…You will regret it, maybe not today,
maybe not tomorrow but soon and for
the rest of your life…”
Rick Blaise (Humphrey Bogart) to Ilsa Lund (Ingrid
Bergman) at –nearly- the end of Casablanca the film
Shukriya !
Dhanyavaad !