Outlook for 2008

The region’s outlook for 2008 is positive, despite the instability that could continue to affect international financial markets. Consensus projections point to 4 percent to 4.5 percent growth for the region as a whole. The rate will be lower than in 2007 because of slower growth in the United States, possible price moderation for Latin American export commodities and the emergence of supply constraints in some sectors and countries.

Consensus projections also suggest that inflation will be on the rise in several countries and that current account surpluses with the rest of the world will slacken. Tighter fiscal positions than in recent years are expected, and public debt ratios in several countries could begin to rise again. Although these trends imply a certain backsliding in macroeconomic management, most analysts agree that risks remain modest for the region as a whole and for nearly all the countries, as reflected in the debt instrument spreads.

This situation could change, however, were there to be a combination of various adverse factors. A recession in the United States cannot be ruled out. The IMF has calculated that such a recession would drive down the region’s growth rate by two percentage points, as it would affect the volume of international trade and the price of export products.

The most unpredictable risks, however, concern international financial markets. The full outcome of the U.S. mortgage and financial crisis is not yet known, nor is the effect it could have on debt markets and capital flows in the Latin American countries. The relatively sound macroeconomic situation in most Latin American and other emerging economies has thus far mitigated the risks of global financial instability. Many of those economies have never before had this level of exposure to the risks that the massive influx of capital poses to their financial systems and domestic markets for real and financial assets.

Beyond fluctuations in the international financial situation, the primary challenge for Latin American economies in the medium term is to maintain high rates of economic growth. Achieving greater competitiveness is an imperative. Although certain countries offer attractive conditions for the development of productive activities and private investment, the region as a whole has made little progress in terms of competitiveness, judging by comparative international indicators (see section of “Key Areas” on growth and sustainable development).