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Latin GDP Growth Controversy

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Brazil and Mexico disagree with IMF's latest projections for GDP growth this and next year.


BY CHRONICLE STAFF

Despite the financial market volatility and U.S. subprime crisis, Latin America is expected to continue growing at healthy rates this and next year, the International Monetary Fund (IMF) predicts.

"The region has weathered the financial market turbulence in global markets rather well so far," Anoop Singh, director of the IMF's Western Hemisphere department, said at a press conference on Saturday. "Initially... asset markets throughout the region did experience volatility, but since then, stock prices have recovered, exchange rates have generally recovered, and in both cases, these are now at or above their pre-turbulence levels."

Latin America's GDP will still end the year with a growth of 5.0 percent, the IMF maintains. That's the same figure the fund estimated in its earlier forecast released in July. The 5.0 percent increase means Latin America will have higher economic growth this year than the United States and the European Union, but lag behind Africa, Asia and the Middle East.

Next year, Latin America will grow by 4.3 percent, the IMF forecasts. That represents a revision downwards of a mere 0.1 percentage points compared to July.

DISPUTE I: BRAZIL

The latest forecast is not without controversy. Both Brazil and Mexico - Latin America's two largest economies - are disputing the IMF forecasts for their countries.

The IMF believes Brazil's GDP - the largest in the region - will expand by 4.4 percent this year and another 4.0 percent next year. That means the 2007 estimate is unchanged from July, while the 2008 forecast is revised down from 4.2 percent.

However, Brazil's finance minister Guido Mantega said last week that his country's economy will grow by 4.8 percent and 5.0 percent this and next year, respectively.

"There will be some moderation of growth from recent highs generally across the region," Singh said when asked by a reporter to comment on Mantega's statements. "This is because...there are external shocks coming from the external environment."

Singh did acknowledge that Brazil did, in fact, reach 5.0 percent growth in the 12-month period ending in the second quarter. "That is a historically high number for Brazil, and the reason is very clear," he says. "Over time, Brazil has been laying the foundation for raising its growth rate significantly."

DISPUTE II: MEXICO

The IMF forecasts that Mexico's GDP - Latin America's second-largest - will expand by 2.9 percent and 3.0 percent this and next year, respectively. That represents a downward revision from July, when the IMF had predicted GDP growth of 3.4 percent and 3.5 percent for 2007 and 2008.

"Mexico obviously is the most closely aligned with developments in the U.S. economy," Singh says. "So as we see the U.S. economy slowing to around 2 percent or just under 2, it is natural to expect that Mexico will be affected."

However, Mexican finance minister Agustin Carstens, a former deputy director of the IMF, has stated that he disagrees with the latest forecast and maintains the Mexican government's projections of GDP growth of 3.0 and 3.7 percent for 2007 and 2008, respectively.

If the IMF projections are right, Mexico will have the second-worst GDP performance in Latin America this year (after Ecuador) and the worst next year, a Latin Business Chronicle analysis shows.

ARGENTINA AND VENEZUELA

Argentina, the third-largest economy in Latin America, is expected to grow by 7.5 percent in 2007 and another 5.5 percent next year, the IMF maintains. That's the same projection as in July.

However, the IMF did revise upwards its projections for Venezuela - the region's fourth-largest economy. The South American country is now expected to post GDP growth of 8.0 percent this year, a substantial improvement from the July forecast of 6.2 percent.

The revision is even more profound when it comes to next year. Venezuela’s GDP will likely expand by 6.0 percent, the IMF says now. That's a significant improvement over the mere 2.0 percent the fund had earlier predicted.

That also means Venezuela will have the second-best GDP growth in Latin America this year and next year (albeit tied with Peru).

CHILE, COLOMBIA, PERU, ECUADOR

The IMF revised down Chile's GDP projections for this year and next year to 5.9 percent and 5.0 percent, respectively, from 5.2 percent and 5.1 percent in July.

Colombia's GDP growth for 2007 was revised up from 5.5 percent in July to 6.6 percent, while next year's figure was revised up from 4.5 percent to 4.8 percent. "We see Colombia's growth rate remaining strong over the medium term," Singh says.

Despite the earthquake in August, Peru's GDP is expected to grow this year by 7.0 percent, the IMF says. That's higher than the 6.0 percent the fund had predicted as late as July. Next year, Peru's economy is expected to expand by 6.0 percent, also a revision upwards from the 5.5 percent previously forecast.

Ecuador, which has seen significant political uncertainty lately, is expected to post GDP growth of 2.7 percent this year, the worst of any country in Latin America, the IMF says. The estimate is the same as the fund released in July. However, the IMF has revised up its GDP forecast for 2008 for Ecuador from 2.9 percent to 3.4 percent. The 2008 figure is not much to brag about, however. It will tie with Honduras for the second-worst performance in Latin America, according to the Latin Business Chronicle analysis.

CENTRAL AMERICA, CAFTA AND PANAMA

Guatemala, Central America's largest economy, is expected to grow by 4.8 percent and 4.3 percent this and next year, respectively, the IMF says.  That represents an upwards revision from July when the fund had projected GDP growth of 4.5 and 4.0 percent.

Costa Rica, the second-largest economy in Central America, will grow by 6.0 percent this year and another 5.0 percent next year, the IMF maintains. That's the same forecast the fund released in July. Costa Rica just held a referendum approving CAFTA, the US free trade agreement with Central America and the Dominican Republic. That approval will likely boost trade and economic activity, experts predict.  

The Dominican Republic, the second-largest CAFTA economy after Guatemala, is slated for a GDP expansion of 8.0 percent this year and another 4.5 percent next year, the IMF says.  That means the 2007 estimate has been revised upwards from the 6.0 percent predicted in July. The 2008 forecast remains the same.

The IMF maintains Panama as the GDP growth winner in Latin America this and next year, with 8.5 percent and 8.8 percent growth, respectively.

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