Latin America and the Caribbean is expected to expand by 4½ percent in 2011 and to moderate to about 4 percent in 2012. Although the slowdown in advanced economies is projected to have only a moderate effect in most countries, large risks to the outlook loom, the IMF said.
In its Regional Economic Outlook for the region, issued on October 5 in Lima, Peru, the IMF said countries in the region continue to benefit from double tailwinds of easy external financing conditions and still-high commodity prices, although these factors are projected to be less stimulative than before.
So far in 2011, economic activity has moderated from the high levels reached in 2010, but remains above potential in much of the region. Growth has been driven by strong domestic demand, with the commodity-exporting countries of South America leading the way.
More recently, fears of a global slowdown are starting to weigh in on the region’s financial markets, with equities, currencies, and commodities taking a hit.
“We still have as our baseline a situation in which both global liquidity and commodity prices will remain, as we have called them, the double tailwinds for the region,” said Nicolás Eyzaguirre, Director of the IMF’s Western Hemisphere Department. “However, these will be somewhat weaker than in the recent past,” he added. Also, with the fluid situation in the markets, the report notes that downside risks are potentially severe.