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The global economy seems to be headed for
yet another year of robust growth. However, the development of the U.S.
economy during the next months will be pivotal, as forecasts oscillate from
negative to positive reflecting the latest data releases. Reports about
mortgage delinquency rates and the ongoing correction in the housing market
have fuelled concerns that the U.S. economy may be heading for a steeper
slowdown than anticipated earlier. The more pessimistic outlook is
corroborated by an ongoing decline in consumer confidence, which suggests
that U.S. consumers will constitute a less dependable support for global
demand. In contrast, major European economies are strengthening and
developments in France and Germany, which have dragged down economic growth
in the past years, are encouraging. In addition, the Japanese economy is
growing at the fastest pace in three years continuing the longest expansion
since the end of World War II. Non-Japan Asia complements the picture of a
strong global economy, as the region will continue to grow at a robust pace,
driven by resilient growth in China and India. Finally, prospects for Latin
America are more optimistic, as the region enters the fifth year of solid
growth supported by high commodity prices and strong domestic demand. |
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Upward
revision to Brazil prompts Latin American prospects to improve
Consensus
Forecast panellists continued to revise upwards the outlook for Latin
American output growth this year. This month, participants raised their
forecast by 0.1 percentage points to the current 4.5%. Upward revisions
for six of the seven major economies lifted the regional growth forecast.
Meanwhile, Mexico’s growth forecast was revised downwards a notch. Brazil
experienced the strongest revision, as panellists raised their GDP growth
forecast by 0.3 percentage points. According to the Consensus, the
Brazilian economy will expand 3.9% this year. A
new methodology recently introduced to measure national accounts has
revealed a better-than-estimated performance of the Brazilian economy
during the last years. As a result, Consensus Forecast participants are
revising their GDP growth forecasts upwards for this year. In addition,
Consensus Forecast panellists lifted the GDP forecast for Argentina by 0.2
percentage points to the current 7.4% estimate. Despite a recent drop in
consumer confidence, domestic demand will continue to grow at a healthy
pace, as consumption will remain strong in the near term and investment is
likely to maintain double-digit rates for the fifth consecutive year.
Moreover, better prospects for the external sector as a result of higher
agricultural commodity prices will support GDP growth this year. In
Venezuela, a
recent spike in oil prices suggests that the government will continue to
benefit from windfall profits that boosted the economy last year. Thus,
the government will have ample funds to provide the population with
additional income, which should compensate for the negative impact of the
President Chávez’ caustic rhetoric as he steers his country towards
socialism.
Finally,
Chile, Colombia and Peru experienced an upward revision of 0.1 percentage
points on their GDP growth forecast.
Inflation forecast remains stable
The Latin
American inflation forecast remained unchanged for the third consecutive
month at 5.2%. Downward revisions for three major economies (Argentina,
Brazil and Venezuela) were insufficient to compensate for upward revisions
in three other economies (Colombia, Mexico and Peru). Meanwhile,
inflation forecast for Chile remained unchanged at 2.8% for this year.
After being revised upwards for four consecutive months, this month,
Consensus Forecast panellists have lowered the inflation forecast for
Venezuela by 0.4 percentage points to the current 18.5% estimate.
Apparently, participants expect the recently introduced anti-inflationary
policies to have at least some mitigating effect on price increases.
In
March, the Venezuelan government cut the value added tax (VAT) from 14% to
11% in all consumer goods, which resulted in the sharpest monthly drop in
consumer prices in decades. The government may opt for another VAT cut in
July. These policies, however, will only have a short-term effect, as the
government continues to fuel the economy by passing on the windfall
profits obtained in the oil sector. Next to Venezuela, Brazil and
Argentina experienced a downward revision of 0.1 percentage points to
their inflation forecast. In spite of recent discrepancies between
Argentina’s government, investors and workers’ union regarding the
methodology used for the calculation of the consumer price index,
Consensus Forecast participants have lowered their inflation forecast for
this year from last month’s 9.8% projection to the current 9.7%. Thus,
Argentina’s inflation forecast stays in the single-digit range for the
second consecutive month after exceeding the double-digit threshold for
more than a year. Colombia experienced the strongest upward revision, as
Consensus forecast panellists lifted their inflation forecast by 0.3
percentage points to the current 4.6%. Last year’s strong growth and
better GDP prospects for this year are fuelling inflationary expectations
for this year. As a result, panellists expect the Central Bank to
continue with the tightening cycle but expect inflation to accelerate
nevertheless. |
