South America Could See Steady Growth or Feel Reduction of Global Growth in 2008

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Researched by Industrial Info Resources (Sugar Land, Texas)--The outlook for Brazil, South America’s largest economy, for 2008 lies somewhere between the ongoing global demand for resources driven by Chinese expansion and the possibility of sneezing attacks on Wall Street. Forecasts for the year ahead are balanced between a steadily growing economy with a rising import bill and the possible chilling effects of a marked reduction in current global growth, which would badly crimp the country’s resource and manufactured exports.

In a reasonably positive scenario, the probability of a significant rise in the price of iron ore of 10% to 15% would support export revenues and would, to some extent, offset the capital requirements needed to maintain investment in the energy sector for the growing demands of industry. The country’s first shipment of imported LNG is expected in April 2008 with the prospect of adding more regasification terminals through 2012 to meet the estimated gas demand rising to 121 million cubic meters per day by 2011 from the current 50 mm cmpd. That is a 142% rise in the supply of one energy source over five years.

Brazil’s central bank expects the country’s trade surplus to hit $40 billion in 2007 and then fall to $34 billion in 2008 (an upward adjustment from the previous forecast of $25 billion for the year). Foreign Direct Investment (FDI) is expected to be somewhere between $28 billion and $32 billion. The ongoing FDI inflow is predicated on continued stability in the economic system. GDP growth for 2008 is forecast at 4.2%, down from 4.6% in 2007.

Energy shortages will continue to inhibit industrial production expansion in Argentina with GDP growth forecast at 6.2% and inflation at 10%. The government has the growth rate at 4% and inflation at 7.7% but has had a policy of underestimating five years of growth, which has run at about 8%. Argentinean President Nestor Kirchner’s wife, Cristina Kirchner, will have to manage the balance of pressures between growth, industrial investment and inflation to maintain socioeconomic stability in the country if, as expected, she wins the presidential election at the end of October.

The high global levels of grain prices will benefit Brazil and Argentina who will supply world food markets and the growing market for crop-sourced fuels. In fact the growth of the latter is pushing the overall crop price coupled with bad weather affecting yields in some regions of the world.

IMF (International Monetary Fund) has forecast that Panama will have the highest GDP growth in the region at 6.8% in 2008 coupled with a low inflation rate of 2.4%. The Central American country will also start to see the benefits of the activity on the project to widen the Panama Canal.

Three countries will see GDP growing at the best rates in a decade with Bolivia forecast at 5.3% (best since 1991), Paraguay 4.5% (best since 1995) and Haiti 4% (best since 1996). Mexico is predicted to hold a GDP rate of 3.5%.

After four years of GDP growth averaging 11.3%, Venezuela will drop to a rate of 2%, taking it to the bottom of the growth table. Ecuador will be second lowest with a rate of 2.9%. The IMF forecasts that Latin American regions will grow at an average 4.9% in 2007, down from the 5.5% rate in 2006 and that any downward movement of oil and metals process caused by a moderation in global growth could compound this drop for 2008.

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