Since 2008, some Latin American economies--we're looking at you, Brazil--have managed to do quite well relative to the economies in other regions. But as we see China and India losing a bit of momentum, might these Latin American nations be more vulnerable to global slowdowns? Paulo Levy of IPEA , the applied economic research institute of the Brazilian government, thinks there is a good chance that Latin American economies will have another year of strong performance. At Project Syndicate , he predicts 4% growth over the year. That's not a stunning figure, but it is likely to be well ahead of the pace elsewhere. Levy: One reason for this prediction is that abundant liquidity in international markets and continuing high demand from China and India may prevent commodity prices – especially for agricultural products – from falling as much as they did during the 2008-2009 crisis. Gains in terms of trade have been crucial for growth in Latin America, given the region’s low domestic saving rates, because they encourage investment but have relatively little negative impact on current-account balances. Strong capital inflows, especially of foreign direct investment, and terms-of-trade recovery since 2009 have made the region less vulnerable to external shocks – that is, to recurrence of the abrupt capital-flow reversal that occurred in late 2008 and early 2009. More importantly, most Latin American countries now have in place counter-cyclical measures to mitigate any negative external impact. For example, many countries that were tightening their monetary policy when the first signs of turbulence emerged have either put interest-rate hikes on hold, or, like Brazil, have already started to reduce rates. Most Latin American countries’ recent adjustments, moreover, have prevented their budget positions and current-account deficits from becoming sources of vulnerability. This appears to be the case, for example, in Peru, where sound fiscal policies have kept deficits and inflation under control. It is also true in Colombia, where strong budget revenues could allow for a temporary spending boost to counter external risks. Noteworthy exceptions are Argentina and Venezuela, where macroeconomic tensions have reduced the scope for counter-cyclical action, and Mexico, whose fate is bound by extensive trade links to that of the United States. Read Southern Resilience here .
Filed under: global business, GDP, global economic crisis, growth, developing nations, Brazil, developed economies, project syndicate, bric nations, latin america, paulo levy