Preliminary Overview of the Economies of Latin America and the Caribbean 2008: Introduction

The economic growth rate for Latin America and the Caribbean is projected to be 4.6% for 2008. This will mark the sixth consecutive year of growth, as well as the end of a period which has very few precedents in the economic history of the region. Between 2003 and 2008, the region’s economy grew by an average of almost 5% per year, with per capita GDP increasing by over 3% per year. This growth was coupled with improvements in labour-market indicators and a reduction in poverty in the region. One of the most outstanding features of this period has been the fact that, in most of the countries, policymakers have placed priority on maintaining macroeconomic balances, which has helped generate surpluses in both their external and their fiscal accounts. The region has also benefited from the highly favourable external economic environment of the last few years.

These results will not be repeated in 2009, however. Growth projections for next year are significantly lower than for the period that is now coming to a close. In view of this situation, the governments of the region should make every effort to deploy countercyclical policies in order to ward off an even sharper economic decline. The growth rate for Latin America and the Caribbean is projected to be 1.9% in 2009 based on a relatively optimistic scenario in which the existing crisis situation gives way to a gradual improvement in the second half of that year. Again in contrast to the period 2003-2008, growth projections for the region suggest that the regional unemployment rate will rise from an estimated 7.5% in 2008 to between 7.8% and 8.1% in 2009, depending on the changes that occur in the labour force participation rate in a context of increasing informality. The behaviour of international food and fuel prices, on the other hand, indicates that inflation will subside from 8.5% in 2008 to around 6% in 2009. What started out as a problem in the subprime mortgage market in mid-2007 became, just over a year later, a systemic crisis that crippled the credit markets of the developed countries. This will undoubtedly have an extremely negative impact on the real economy, although, as of the end of 2008, it is still too soon to accurately gauge the full impact of the crisis. In 2008, the world economy underwent a sharp slowdown as growth dropped to 3.7% from 5.0% in 2007.

Measured on the basis of exports, world trade expanded by 4.7% in 2008, which was far less than the 7.1% rate recorded the year before. Global economic activity began to cool as a consequence of the financial crisis, which, with the developed countries as its epicentre, erupted in mid-2007 and continued to deepen throughout 2008 despite the determined efforts made by authorities in numerous countries to contain it.  The developed economies as a group grew by 1.4% this year, compared with 2.6% in 2007, and a contraction of 0.5% in the major advanced economies is expected in 2009.  Developing countries also experienced a slowdown in 2008, but still managed to post a robust growth rate of 5.9% and are expected to grow by 4.6% next year.

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