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The global economy is headed for a moderate
slowdown this year. The U.S. economy mainly hinges on the impact of the
bursting housing bubble on private consumption, which has constituted one of
the key pillars of global consumption during the past years. In fact, the
U.S. economy is showing clear signs of a slowdown for the second consecutive
quarter. However, consumer confidence remains above average, which could
support consumer spending in the months ahead. In addition, the major
European economies are strengthening and may compensate for the softness in
U.S. demand. Meanwhile, the Japanese economy has just marked its longest
expansion since the end of World War II and the economic outlook remains
robust. Moreover, non-Japan Asia will continue to grow at a robust pace,
driven by resilient growth in China and India. Finally, prospects for Latin
America remain optimistic, as the region enters the fifth year of solid
growth propelled by the drawn out upward cycle in commodity prices. |
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Latin
American outlook remains unchanged
The
outlook for Latin American output growth this year remained unchanged at
last month’s 4.2% forecast. Upward revisions to two major economies
(Argentina and Colombia) were insufficient to compensate for downward
revisions to one country (Venezuela). The outlook of the remaining four
major economies remained unchanged. Argentina experienced the strongest
upward revision to this year’s outlook, with GDP growth forecast raised
0.3 percentage points over last month’s projection to 7.2%. Following on
four years of recession, culminating in the default and abandonment of the
currency peg to the US$ in 2002, the country is entering the fourth year
of a strong rebound, which makes Argentina the fastest growing economy
during this period. Nevertheless, in spite of four years of strong
growth, Argentina has not yet recovered the wealth it enjoyed a decade
ago. Measured in GDP per capita in US$ terms, this year Argentina will
surpass the level last seen in 1991. Jointly with Argentina, Colombia
experienced a 0.1 percentage point increase in this year’s growth
forecast. The Colombian economy is profiting from domestic factors.
Healthy consumer confidence as well as strong investment growth
promises
to buttress domestic demand this year. In addition, industrial production
will continue to grow at one of the fastest rates in more than a decade.
Venezuela, in contrast, experienced a downward revision of 0.2 percentage
points to its growth forecast for this year.
After
being the fastest growing economy in 2006, the Consensus sees Venezuela
expanding yet another year at a resilient pace, as the government
generously distributes the oil wealth among the population, fuelling
private consumption growth. This year, however, oil prices are expected
to moderate, thus reducing the windfall profits that boosted the economy
last year.
Higher
inflation forecast for Venezuela prompts upward revision for entire region
Keeping
inflation under control remains a challenge in Latin America. While last
year inflation dropped below the 5.0% threshold for the first time in
decades, inflation is set to rise again this year. According to this
month’s poll, average regional inflation rate will rise to 5.3% by the end
of the year, 0.3 percentage points above last month’s projection.
Moreover, two of the seven major economies in the region, Argentina and
Venezuela, will record double-digit inflation rates this year.
In
Venezuela, the government employs exchange rate controls and intervenes in
the economy by fixing prices for certain goods and services. In spite of
these unorthodox attempts to control inflation, the country will end this
year with the highest inflation rate in the region.
Consensus Forecast panellists have raised their inflation forecast for
this year by 1.9 percentage points, from last month’s 16.2% projection to
the current 18.1%. Peru and Colombia, in contrast, experienced downward
revisions in their inflation forecasts. In the first case, a stronger
currency as a result of capital inflows entering the country is helping
monetary officials to control inflation. Therefore, Consensus Forecast
participants lowered their inflation forecast for Peru by 0.3 percentage
points, from last month’s 2.3% to the current 2.0%. Meanwhile, in
Colombia, Consensus panellists cut the inflation forecast by 0.1
percentage point to the current 4.1% forecast. Although the Colombian
economy is growing at a robust pace that could generate price pressures,
the Consensus panel believes that the monetary tightening initiated last
year will keep inflation under control this year. |
