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Despite the slowdown taking place in the
United States, the global economy is headed for yet another year of robust
growth. In the United States, economic growth rebounded in the second
quarter, alleviating fears that the adjustments in the housing market would
trigger a sharp deceleration in consumption. Moreover, in spite of a major
energy price shock, consumer confidence is again pointing upwards and, for
the time being, consumer spending remains surprisingly robust. In addition,
other economies are set to pick up the slack of less resilient US
consumption. Major European economies are strengthening as robust growth in
services is compensating for softer growth in the industrial sector. Japan
complements the picture of a global economy that is decoupling from a
slowing US economy, as strong growth in other economic areas is keeping
demand for Japanese goods high and is thus supporting the longest expansion
since the end of World War II. Furthermore, non-Japan Asia will continue to
grow at a robust pace, driven by unrelenting growth in China and India.
Finally, prospects for Latin America are improving as better projections for
the majority of the major economies compensate for a deteriorating outlook
of the Argentinean and Mexican economies. |
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Downward
revisions to Argentina and Mexico dent increasing optimism for entire
region
After one
month with no changes to the region’s outlook, panellists have resumed the
upward revisions registered in the first half of the year. Compared to
last month, Consensus Forecast panellists raised their 2007 output growth
forecast for Latin America by 0.1 percentage points to the current 4.7%.
Upward revisions for five of the seven major economies lifted the regional
growth forecast and more than compensated for downward revisions to
Argentina and Mexico. Brazil, Chile, Colombia, Peru and Venezuela
experienced upward revisions of 0.2 percentage points to their growth
forecasts compared to last month.
In the
case of Brazil, Consensus Forecast participants expect the economy to grow
4.5% this year. The Brazilian economy is benefiting from strengthening
domestic demand as a result of lower interest rates. Moreover, the strong
real does not seem to be hurting exports and the external sector is
supporting the strong domestic economy. As for Chile,
Consensus
Forecast panellists anticipate that the economy will expand 5.7% this
year.
The
Chilean economy continues to show signs of a strong recovery after the
sub-par performance registered last year. In addition, copper prices
remain high, ensuring another year of healthy export growth. In Colombia,
participants expect the economy to grow 6.0% this year.
Faster than
expected growth in the first quarter is prompting a more optimistic view
of this year’s growth potential for Colombia. Furthermore, recent data
confirm that industrial production continues to expand at a double-digit
pace, which will support economic expansion this year. Peru, which was
also revised 0.2 percentage point upwards over last month, is now expected
to grow 7.3% this year, and thus the Andean country constitutes, together
with Argentina, the fastest growing economy in Latin America.
Finally,
panellists expect the Venezuelan economy to expand 7.0% as the country
continues to benefit from high oil prices. On the down side, Mexico and
Argentina’s growth forecasts suffered a downward revision of 0.1
percentage points.
According to this month’s Consensus, the Mexican
economy will expand only 3.2% this year.
The
Mexican economic outlook is deteriorating in the wake of disappointing
first quarter growth figures. In addition,
Consensus Forecast participants anticipate that sluggish growth in the
United States will have a more noticeable impact on the Mexican economy
than previously expected, harming Mexican exports and eroding growth in
the all-important manufacturing sector. In Argentina, the energy crisis
is having a limited but noticeable impact on growth projections, as
panellists pared their forecasts to 7.3%.
Strong growth pushes up inflationary expectations
As a result
of better prospects for Latin American output growth, inflation
expectations are also rising. According to this month’s poll,
average
regional inflation will reach 5.2% by the end of the year, 0.1 percentage
points above last month’s projection.
A pronounced
upward revision to the Chilean inflation forecast prompted the up-tick to
the regional inflation forecast. Moreover, Consensus Forecast panellists
also lifted their projections for inflation in Brazil, Colombia, Peru and
Venezuela. Inflation forecasts for one country (Argentina) were revised
downwards while another country (Mexico) remained unchanged compared to
last month.
Chile
experienced the strongest upward revision to its inflation forecast, as
Consensus Forecast panellists lifted their estimate by 0.6 percentage
points to the current 3.8%. Currently, headline inflation is above the
Central Bank’s 3.0% target, which has prompted the Central Bank to raise
interest rates twice in a month. Nevertheless, the Consensus Panel does
not expect a moderation in inflation throughout the remainder of the year,
as the strong growth is fuelling inflationary pressures. Next to Chile,
Colombia experienced the second strongest upward revision to its inflation
forecast. Consensus Forecast panellists lifted their Colombian inflation
estimate by 0.3 percentage points to the current 5.2%. Improving growth
prospects for this year are fuelling inflationary expectations despite
the
constant appreciation of the peso against the US dollar.
As a result, panellists expect the Central Bank of Colombia to continue
with the tightening cycle. In addition, Peru experienced an upward
revision of 0.2 percentage points to its inflation forecast. As a result
of the current strong growth, panellists expect inflation to continue at
the current levels, which are slightly above the Central’s Bank target.
On the other hand, Argentina experienced the strongest downward revision
to this year’s inflation forecast. According to this month’s Consensus,
Argentina will post an inflation of 9.1% by the end of the year, which is
0.2 percentage points below last month’s forecast. Despite the
controversy generated by the change in the methodology to measure consumer
price variations earlier this year, panellists continued to revise down
Argentina’s inflation forecast for the sixth consecutive month. |
