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Latin America’s economic outlook to infinity and beyond

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

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Latin America’s economic outlook to infinity and beyond

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  1. Latin America’s economic outlook to infinity and beyond Juan Carlos Moreno Brid Deputy Director ECLAC - Mexico JAWAHARLAL NEHRU UNIVERSITY,New Delhi, January 2012

  2. Global growth has slowed sharply after the recovery from the crisis WORLD GDP GROWTH RATES, 2009-2012 (Percentages) e/ Estimate. p/ Projection.

  3. And volatility and uncertainty increased in 2011 EUROPE (SELECTED COUNTRIES): FIVE-YEAR CREDIT DEFAULT SWAP RISK PREMIUMS, 2009-2011 (Basis points)

  4. LatinAmerica’s export growth of volumesisslowing VOLUME OF WORLD EXPORTS BY REGION, 2007-2011 (Annual growth rates, three-month moving average)

  5. And alsothepricesforitsmainexports GLOBAL COMMODITY PRICE INDEXES, 2002-2001 (Index: annual average price for 2002=100)

  6. In LA Terms of trade were favorable for much of 2011 LATIN AMERICA: TERMS OF TRADE, 2005-2011 (Index: 2005=100)

  7. Import volumes and prices grew fast LATIN AMERICA: ESTIMATED VARIATION IN THE VALUE OF IMPORTS BY VOLUME AND PRICE, 2011 (Percentages)

  8. And international reserves soar LATIN AMERICA AND THE CARIBBEAN: INTERNATIONAL RESERVES (Millions of dollars)

  9. 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)

  10. 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)

  11. Inflation rose but it is still low LATIN AMERICA: COMPONENTS OF INFLATION, JANUARY 2007 – NOVEMBER 2011 (12-month inflationrate, simple averages)

  12. And what happens to output and the current account?

  13. In the third quarter, the slowdown in growth began to steepen LATIN AMERICA: QUARTER-ON-QUARTER GROWTH IN GDP, SEASONALLY ADJUSTED SERIES (Percentages)

  14. 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) a/ Estimate.

  15. Growth slowed from 5.9% in 2010 to 4.3% in 2011 and will … LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH RATES, 2011 (Percentages)

  16. But the current account deficit widens CURRENT ACCOUNT STRUCTURE (Percentages of GDP)

  17. 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)

  18. Currency appreciation continued… LATIN AMERICA AND THE CARIBBEAN: REAL EFFECTIVE EXTRAREGIONAL EXCHANGE RATES, 2008-2011 (Index: averagefor 1990-2009 = 100)

  19. Scenario for infinity and beyond • In 2012 • ECLAC’s baseline scenario: economic growth will continue to slacken, now o 3.7% in 2012)

  20. And to infinity (-2012) and beyond?

  21. 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

  22. Onelens: the BPC growthmodel • Harrod, Prebisch, Thirlwall, Gap models • Long termgrowthmustbeconsistentwith a sustainable balance of payments • (vs Lawson, Corden at al DoestheCurrentAccountmatter?) • BPC Specifications: levelsor ratios, trade and factor paymentsfromabroad • X – M = 0, (X – M) / Y ≤ k, interest, remittances • GNP = GDP + Net Factor Payments from abroad and terms of trade effects

  23. Thirlwall’smodel of BPC growth External demand Incomeelasticity of imports Effect of real exchangerate cum priceelasticities of trade Incomeelasticity of imports

  24. 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

  25. Plan C Apply the BPCC model B ring in, P ray for, Convince Capital inflows to increasingly keep coming to finance your current account, maybe default

  26. 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

  27. 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

  28. Shukriya!Dhanyavaad !

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