Larger Latin American Economies Recovering Faster than Expected

Brazil and other countries growing by more than 7 percent in 2010

Caribbean countries just beginning to recover

Policy challenges of avoiding overheating, inflation, financial excesses

“In the faster growing countries in South America, the immediate policy challenge is to make sure things don’t get too hot, to watch out for excesses,” Eyzaguirre told a press briefing at the IMF-World Bank Annual Meetings in Washington, D.C. on October 8.

But for the United States, the IMF projects that the recovery will be slow, held back by weak balance sheets—the legacy of the U.S. financial crisis. “There’s no quick way out of that situation, so we expect only a gradual recovery and U.S. monetary policy to stay easy for a prolonged period,” Eyzaguirre told reporters.

The U.S. economy is projected to expand by 2.6 percent in 2010 and 2.3 percent in 2011. Canada’s economy is expected to do better than its neighbor—about ½ point stronger growth in both years.

“In essence, we continue to see a relatively cool recovery in the north, particularly in the United States, but a much hotter recovery in the south, particularly in South America,” Eyzaguirre told reporters.

Mixed picture

The former Finance Minister of Chile said that the external environment creates a mixed picture of positive and negative factors for the Latin America and Caribbean region.

Low growth in the advanced economies, including in the United States, will create a drag on growth in the countries with strong real linkages to the United States—namely, Mexico, countries of Central America, and the Caribbean.

On the other hand, low growth in advanced economies also means very low global interest rates. “This is a stimulative factor for the Latin America and Caribbean region—especially for countries with the strongest fundamentals, the ones that appeal most to foreign investors,” Eyzaguirre pointed out.

In addition, stronger growth in the emerging market economies of Asia is keeping world prices of commodities high. “This affects the region in different ways, but clearly it’s another stimulative factor for the commodity exporters of South America,” Eyzaguirre noted.

Growth prospects

Eyzaguirre noted that this mixed global environment is reflected in a diverse outlook for the Latin America and Caribbean region.

Brazil and a number of other economies in South America are growing by more than 7 percent this year. In fact, for some countries, such as Argentina and Paraguay, surging...