Latin America in "relatively better fiscal shape" than U.S. and Europe, according to Scotiabank
Toronto—Latin America continues to experience growth despite signs of moderation in some of the region’s economies, according to a new Scotiabank report.
Scotiabank’s Latin America Regional Outlook, Summer 2012, found the core developing countries in South and Central America are beginning to feel the effects of growing global fears.
“The core group of countries in the developing Americas is not immune to the heightened financial turmoil present in Europe, decelerating growth dynamics in Asia and the sluggish recovery in North America,” Scotiabank vice-president and head of international research Pablo Breard said in a statement. “The pace of growth is uneven, with marked differences between the U.S.-linked countries in North and Central America and the more Asia-influenced, domestic-driven economies in the South.”
Brazil, the world’s seventh-largest economy, will initiate a new phase of sustained economic growth following a marked slowdown in industrial activity during the second half of 2011, according to report findings.
Mexico remains on a solid economic growth path due to its close link to the U.S. industrial and monetary cycles and growing domestic demand in an electoral year.
Colombia, Peru and Chile also enjoy similar rates of economic expansion strongly influenced by commodity export markets and steady access to domestic credit.
Meanwhile, both Venezuela and Argentina are poised for steep economic contraction, according to the bank, courtesy of ill-defined and erratic policy implementation.
“Inflation is not an issue of material concern in the majority of Latin American economies,” Bréard said. “Those countries which embraced inflation-targeting schemes are reaping the benefits of manageable price pressures which help offset adverse movements in global currency markets.”
According to Scotiabank, Latin America is in “relatively better fiscal shape” than the U.S. and Europe.
Most countries in the region—even those which are adopting inconsistent policy options like Argentina or Venezuela—enjoy a manageable fiscal deficit position, prompting the state to play a more dominant role in adopting pro-growth stimulus strategies.
The region’s overall debt profile has steadily improved, raising the prospects for credit rating upgrades.
Latin America also continues to show progress in developing democratic institutions and a more predictable policy environment, according to the Scotiabank report.
“Brazil’s growing regional leadership, Mexico’s enhanced party-based political system, improved bilateral relations between Colombia and Venezuela, regional integration amongst economies in the Pacific and the increased professionalism of regional central banks are some of the structural advances that will transcend the still-fragile global market context,” Bréard said. “Nevertheless, new issues of concern have emerged which require decisive consensus-based action by national governments.”
Scotiabank’s global economic research unit provides in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, and commodity and industry performance, as well as monetary, fiscal and public policy issues.