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The Global Context and Regional Outlook for Latin America and the Caribbean. Benedict Clements Division Chief Western Hemisphere Department International Monetary Fund* June 20, 2007
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Western Hemisphere Department
International Monetary Fund*
June 20, 2007
*The views expressed herein are those of the author and should not be attributed to the IMF, its Executive Board, or its management.
The global expansion remains vigorous, with its pace expected to decelerate only moderately in 2007
Real GDP Growth, 1970-2007 (percent)
(projections are shown for 2007)
...but risks remain
Looking forward, the U.S. economy is expected to continue its “soft landing”, even though risks are weighted to the downside
Real GDP growth:
Growth across the region remains robust, with domestic demand now being the main engine of growth...
In light of the exceptionally benign conditions of recent years, risks are moderately weighted to the downside
On the downside:
On the upside:
Prudent macroeconomic policies have been entrenched
This, in turn, has contributed to positive macro outcomes
But there are some trends that deserve careful monitoring
Inflation declined in most countries last year and is expected to remain generally contained in 2007
Social indicators have continued to improve
Private sector growth, especially to households, continues to grow briskly
This is not yet a source of concern but requires careful vigilance
Market turbulence in early 2007 was largely confinedto equity markets
The region’s external accounts have reached record surpluses, albeit with significant variations across countries…
...reflecting the dependence of many countries on commodities
However, continued strong import growth and declining terms of trade are projected to reduce external surpluses significantly
Strong commodity prices have also boosted primary fiscal balances across the region, helping reduce public debt ratios
The share of FX-denominated debt has also been reduced significantly, with mixed progress on lengthening maturities
Fiscal Policy Stance, 2004-06, 2006-07
(changes in % of GDP between indicated years)
However, public non-interest spending has also grown rapidly, which has contributed to exerting a pro-cyclical fiscal stimulus
The stance of monetary policy varies widely across countries, reflecting institutional features but also external and fiscal developments
How are changes in external conditions likely to affect growth in Latin America?
Critical external factors include:
Model-based simulations show that:
Further progress in reducing remaining vulnerabilities would lower the region’s exposure to external conditions
Latin America’s sensitivity to the global economy
Commodity prices are key for growth in the region
While the battle for macroeconomic stability is being won, the key challenge is to raise investment and boost productivity beyond historical long-run averages...
For example, to double per capita income in 20 years:
TFP Growth (% per year)
Raising productivity and investment requires policies that entrench and extend recent achievements
There are strong complementarities between policies that foster higher growth and those that share its fruits more equitably
Perceived Quality of
Math and Science Education
Frequency and Duration of Growth Spells
% spells lasting at least 10 years
developingContinued implementation of sound macroeconomic policies will help the region to escape the boom-bust pattern of the past
Thank youFor a copy of the IMF’s Regional Economic Outlook for the Western Hemisphere:http://www.imf.org/external/pubs/ft/reo/2007/whd/eng/wreo0407.htm