Latin America has proven resilient to external shocks. Large international reserves and relatively stronger fiscal positions have helped to protect economies against contagion. The policy response to global turmoil has had two major components: increased reliance on local currency depreciation as a shock absorber and monetary easing to support domestic demand.
- A soft landing is in the making amidst global headwinds. Real GDP growth, however, is projected to strengthen next year driven by policy stimulus and more stable global conditions.
- The region’s improved global standing is bound to put sustained upward pressure on local currencies, bringing to the fore the need for productivity-enhancing reforms and more balanced policy mixes in order to protect international competitiveness.
- While increased trade and investment links with China have helped the region to underpin stability by diversifying export markets, policy frameworks need to be improved to face off a potential Chinese economic downturn. Latin American countries must reinforce their defenses against sharp and sustained terms of trade losses.
Latin America Regional Overview
Although global headwinds have moderated growth, Latin America has proven increasingly resilient to external shocks. The region’s improved global standing, however, is putting upward pressure on local currencies, highlighting the need for productivity-enhancing reforms and recalibration of the policy mix in order to protect competitiveness.
Latin America Publications
Country Publications
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Colombia: Gaining Macro Strength
May 18, 2012Pro-business policies have continued to strengthen the macroeconomic position. The country is not only attracting investment but also becoming a source of capital for the region. Growth is converging to trend, thereby reducing inflationary pressures. Key challenges are to improve competitiveness, reduce income inequality and eradicate violence.
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Uruguay: Back to Investment Grade
April 26, 2012Uruguay has regained investment grade status. This was the result of prudent policies that have underpinned investor confidence, boosted private sector investment and allowed diversification of the export base. FDI inflows are among the highest in the region as a share of GDP. Key challenges are further lowering dollarization and bolstering counter-cyclical fiscal capacity.
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Brazil: Falling Short in the Competitiveness Challenge
April 23, 2012International competitiveness has declined under the weight of currency appreciation, rising wages and sluggish productivity growth. The policy response to prop up competiveness has focused on curbing further real appreciation. Increasing the economy’s underlying resilience against terms-of-trade losses, however, calls for reforms that boost productivity growth and a rebalancing of the policy mix that increases public savings.
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Argentina: Chronicle of a Nationalization Foretold
April 23, 2012The renationalization of oil company YPF has sharply undermined investor confidence and is bound to backfire by reducing private sector investment and trend growth. With the government struggling to sustain growth, the risks of further deterioration of the macroeconomic position and increased state interference in the economy are on the rise.
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Argentina: Rising Fiscal Dominance
April 05, 2012The government has scrapped legal limits to access of central bank financing in an attempt to sustain growth. The move is bound to weaken the central bank’s balance sheet, put downward pressure on the peso and fuel inflation. The likely deterioration of bank asset quality due to state-directed credit will further increase the economy’s vulnerability to shocks.
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Mexico: Proven Resilience
February 17, 2012Prudent policies have allowed Mexico to withstand global tensions rather well. Growth moderated somewhat but is regaining strength. The approaching presidential election is unlikely to induce policy shifts. The challenge for next president is to increase trend growth, which will require moving forward structural reforms.
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Argentina: Monetary Policy Blues
January 23, 2012The 2012 monetary program is designed to fuel growth and maximize central government financing by the central bank. In our view, it reinforces already high inflation and exacerbates macroeconomic imbalances. Despite monetary stimulus, we expect growth to slow sharply this year under the weight of a tightening external constraint.
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Regional Publications
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Latin America Regional Overview
March 08, 2012Although global headwinds have moderated growth, Latin America has proven increasingly resilient to external shocks. The region’s improved global standing, however, is putting upward pressure on local currencies, highlighting the need for productivity-enhancing reforms and recalibration of the policy mix in order to protect competitiveness.
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LatAm has Strengthened its Buffers Against Global Turmoil
September 30, 2011Latin America is well-positioned to withstand deepening turbulence in the global economy and sustain moderate growth in 2012. In most countries, resilience to external shocks has been bolstered by price stability, strong public finances, flexible exchange rates, high international reserves and more robust banking systems. Countries that have pursued heterodox policies cannot count on these buffers.
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Latin America Regional Overview
March 26, 2011In 2010, high commodity prices and countercyclical stimulus resulted in rapid recovery from the global slowdown. Regional output increased 6.1%. We project growth to decelerate to 4.5% in 2011 as most key countries counter rising inflationary pressures with monetary tightening. Strong fundamentals have given rise to recovery of capital inflows; currencies have appreciated to pre-crisis levels.
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Moderating Currency Appreciation
January 20, 2011Private capital inflows are increasing to pre-crisis levels. Following a sharp depreciation of local currencies during the global crisis, they are now appreciating back to the levels that prevailed before the crisis. Countries trying to moderate appreciation pressures would benefit from fiscal adjustment and productivity-enhancing reforms.
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Latin America Regional Overview
March 12, 2010Strong fundamentals and counter-cyclical stimulus programs have set the stage for robust economic recovery after the worst recession in 25 years, but timely withdrawal of monetary and fiscal stimulus is essential to repair public balance sheets and preserve hard-won macroeconomic stability. We project 4.8 percent regional GDP growth in 2010.
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