Latin America Perspective 2009
by R.C.Rohan Nair, Heidrick & Struggles- Knowledge Management Center
Overview
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In 2008 the environment for business and investment in Latin America, which had grown increasingly attractive over the previous five years, external developments caused a dramatic downturn at the beginning of the fourth quarter.
At outset of the year a moderate slowdown was expected because of the problems in the U.S. economy, but there was a growing consensus that Latin America had become immune to the external shocks that had historically triggered economic crises in the region.
External Environment:
Three negative external developments affected the Latin American business environment:
The credit crisis, which began in the United States in 2007 as a sub-prime credit crisis, and later spread to the rest of the world in the latter half of 2008.
The economic slowdown that also had U.S. origins, but spread to the other mature economies, most notably the EU and Japan.
Rising energy and food prices generated inflationary pressures around the globe.
Domestic Environment:
The domestic components of the business environment in Latin America were generally strong at the beginning of 2008, although there were country-to-country variations.
The turmoil of September and October, however, suggested that by year’s end the inter-related domestic components of the Latin American business environment would be significantly realigned.
Latin America – Economic Outlook for 2009
► The effects of the global recession are not expected to be as intense in Latin America as in other parts of the world.Most countries in the region should post slight growth rates in 2009 and 2010. Meanwhile, the downturn will serve to ease inflation in the region
► The latest consensus GDP growth forecast for the region is 1.4 percent for this year, down from 3.6 last September
► The country specific projections indicate zero to negative growth in Mexico, Argentina and Venezuela. The remaining large countries will grow at rates closer to 2 percent (Brazil, Colombia, and Chile). Peru will continue to outperform the rest of the region with a growth rate that will be close to 4.5 percent (but low compared to the 9 percent in (2008)
► Growth in Latin America will come from domestic sources, notably consumption and investment
► An important source of concern for the region’s financial outlook is related to changes in the current account of Asian economies, most notably China’s. A reduction in the current accounts in Asia could alter the demand for treasuries and consequently their yield
► Although a sudden stop to capital flows appears unlikely at this point, the region should be relatively prepared to withstand the collateral damage high levels of borrowing by the US Treasury and lower global savings
► The economies in Latin America are decelerating as industrial production contracts and consumer confidence reaches historical lows. Industrial and commodity export volume has declined as global demand cooled off
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