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ECLAC forecasts 2% growth for Latin America in 2001

Projections from the Economic Survey of Latin America and the Caribbean 2000-2001

Less favorable conditions will prevent growth rates similar to 2000

Graphics    Spanish version>> 

As conditions at home and abroad have been less favorable than originally forecast, 2001 is shaping up to be a disappointing year for the countries of Latin America and the Caribbean. Estimates from the Economic Commission for Latin America and the Caribbean (ECLAC) indicate that the region should grow at approximately 2% this year, about half the rate achieved in 2000 (4%). This scenario could prove even more adverse if there is no clear turnaround in trends affecting the world economy.

Lower GDP growth will push fiscal deficits higher, to around 3% of GDP, while inflation should drop again, to an average of 7.5% in 2001. Unemployment is expected to remain at almost 8.5%, while the current account deficit should reach 3% of regional GDP (about US$58 billion).

According to the ECLAC report, Economic Survey of Latin America and the Caribbean 2000-2001,  the region will feel the effects of the slowdown in world growth this year, due to slower growth in the United States, Europe, developing countries in Asia, and troubles in Japan's economy. Domestic factors, particularly weak domestic demand and credit in several countries, electric power supply problems in Brazil, and political difficulties in some countries have also contributed.

A marked slowdown in world trade has also influenced the unfavorable external climate, causing the economies of Latin America and the Caribbean to face less demand and lower prices for their exports. The main effect on the region has been declining export growth. Thus, trade and current account deficits will rise because imports continue to climb relatively quickly in several countries, although by the second half of 2001 this trend should slow.

At the same time, the strength of the dollar against other international currencies has been reflected in a real appreciation of real exchange rate for the region as a whole, with a resulting decline in trade competitiveness. At the regional level, the crisis in Argentina triggered devaluations throughout the Southern Cone, which affected primarily the currencies of Brazil, Chile, Uruguay and Paraguay.

The region also continues to face problems associated with the reduced availability and high cost of external financing. Overall, capital flows into Latin America and the Caribbean should reach almost US$ 60 billion in 2001, which is similar to the average observed during the 1998-2000 period. The main component will be foreign direct investment and, to a lesser degree, official financing.

Regional Growth

According to the ECLAC report, the decline in regional growth is particularly frustrating, given that conditions at the start of the year suggested that the region's economies were starting a new growth cycle after the 1999 recession. It adds that if the external scenario changes quickly, hope of some recovery during the second half of 2001 remains, but even so, firm growth will not take hold until next year.

At the national level, the region's two largest economies, Brazil and Mexico, have suffered a significant drop in their growth rates during 2001. The Dominican Republic, the region's most dynamic economy in recent years, has suffered similar trends. Meanwhile, the countries facing the most serious difficulties are Argentina, Peru and Uruguay, where growth will probably be zero or even negative. Ecuador, on the other hand, is experiencing the highest GDP growth, although it will not manage to return to 1998 levels.


Employment, Fiscal Deficit and Reforms

During the first six months of 2001, employment in the region fell slightly from 52.9% to 52.6% of the working age population and it will probably fall further during the second half. Nonetheless, regional unemployment fell from 9.0% during the first half of last year to 8.5% during the first half of this year, because participation in the labor force declined.

In 2001, the decline in the fiscal deficit posted in 2000, when it reached 2.3% of GDP down from 3.1% in 1999, will probably turn around. ECLAC estimates that half the region's countries will post larger public sector deficits.
 
During the first half of 2001 structural reforms in the region also advanced slowly, due, among other factors, to the postponement of several privatizations that had been previously announced.

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August 5, 2001

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