Growth in Latin America Slowed by Economic Dynamics in Europe, Asia and North America: Scotiabank

TORONTO, July 18, 2012 /CNW/ - Latin America continues to grow despite signs of moderation in some of the region's economies, according to Scotiabank's Latin America Regional Outlook, Summer 2012 report.

"The core group of countries in the developing Americas is not immune to the heightened financial turmoil present in Europe, decelerating growth dynamics in Asia and the sluggish recovery in North America," said Pablo Bréard, Vice-President, Head of International Research, Scotiabank. "The pace of growth is uneven, with marked differences between the U.S.-linked countries in North and Central America and the more Asia-influenced, domestic-driven economies in the South."

Brazil, the world's seventh-largest economy, will initiate a new phase of sustained economic growth following a marked slowdown in industrial activity during the second half of 2011, the regional outlook report states. Mexico remains on a solid economic growth path due to its close link to the U.S. industrial and monetary cycles and growing domestic demand in an electoral year.

Colombia, Peru and Chile also enjoy similar rates of economic expansion strongly influenced by commodity export markets and steady access to domestic credit. Meanwhile, both Venezuela and Argentina are poised for steep economic contraction, courtesy of ill-defined and erratic policy implementation.

"Inflation is not an issue of material concern in the majority of Latin American economies," said Mr. Bréard. "Those countries which embraced inflation-targeting schemes are reaping the benefits of manageable price pressures which help offset adverse movements in global currency markets."

Latin America is in relatively better fiscal shape than the U.S. and Europe. Most countries in the region, even those which are adopting inconsistent policy options like Argentina or Venezuela, enjoy a manageable fiscal deficit position, prompting the state to play a more dominant role in adopting pro-growth stimulus strategies. The region's overall debt profile has steadily improved, raising the prospects for credit rating upgrades.

"The steady development of local sources of finance through enhanced banking sectors and well-regulated local-currency bond markets has sharply diminished the need to access external - private or multilateral - sources of financing," added Mr. Bréard. "Long-term equity investors continue to see enormous potential in thriving sectors connected either to infrastructure or to the development of vast energy and mineral resources."

Latin America continues to show progress in developing democratic institutions and a more predictable policy environment, according to the Scotiabank Economics report.

"Brazil's growing regional leadership, Mexico's enhanced party-based political system, improved bilateral relations between Colombia and Venezuela, regional integration amongst economies in the Pacific and the increased professionalism of regional central banks are some of the structural advances that will transcend the still-fragile global market context," added Mr. Bréard. "Nevertheless, new issues of concern have emerged which require decisive consensus-based action by national governments."

Scotiabank's global economic research unit provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

Devinder Lamsar, Media Communications, [phone], [email protected]