São Paulo – The International Monetary Fund (IMF) has lowered its growth forecast for the Brazilian Gross Domestic Product (GDP) this year. According to the World Economic Outlook report published this Tuesday (20), the economy should grow by 3.8% in 2011, less than the 4.1% projected by the institution in June and the 4.5% predicted by the Brazilian government. The Fund believes that the Brazilian economy slowdown is a reflex of the economic crisis that has hit the United States and Europe.
The report points out that the majority of emerging countries will be affected by the uncertainties of rich nations. In Latin America, the only country that should grow less than Brazil in 2011 is Venezuela (2.8%). Emerging countries should grow by an average of 6.4%. The average global growth forecast is 4%. Developed nations should grow by 1.6%, according to IMF estimates.
The fund forecasts that Brazilian inflation should end 2011 at 6.6%, higher than the top end of the government’s forecast, which is 6.5%. In 2012, the inflation rate should be 5.2%. The inflation target for 2011 and 2012 is 4.5%.
Brazil was not the only country whose growth forecast was revised downward by the IMF. According to the report, the United States should grow by 1.6% this year. In June, the institution had forecasted growth of 2.2%. The Eurozone should grow by 1.5% according to Fund. The previous forecast pointed to growth of 2.5%. The growth estimate for China was 9.6%. Now it is 9.5%.
In the report, the economic counsellor and director of the IMF research department, Olivier Blanchard, claims that economic recovery has become much more uncertain than it was in April this year. He says the world economy is suffering two adverse economic developments right now.
“The first is a much slower recovery in advanced economies since the beginning of the year, a development we largely failed to perceive as it was happening. The second is a large increase in fiscal and financial uncertainty, which has been particularly pronounced since August.” Blanchard claims that efficient economic policies are required at this time in order to improve the outlook and minimize the risks.
China
While the IMF forecasts a slowdown of economy, the World Bank published a survey this Tuesday assessing economic relations between the Latin America and Caribbean countries and China.
The survey “Latin America and the Caribbean’s Long-Term Growth: Made in China?” claims that the Asian giant has become the leading partner of the countries in the region, and that this relation was established thanks to the trading of abundant raw material found in Latin America and the Caribbean for low-technology products manufactured at low costs in China. “This type of trade often limits potential gains in technology and knowledge sharing,” says the World Bank.
The survey compares the development that relations with China have enabled Latin American countries to achieve and the development that the Asian tigers experienced from 1970s to the 1990s thanks to their economic relations with Japan. Those countries, however, benefited more from the Japanese partnership than the Latin and Caribbean ones have from the
Chinese thus far.
According to the World Bank, in the 1980s the installed power generation capacity of Latin American countries and the Caribbean was 17% lower than that of Asian countries. Now, it is almost 50% lower. The share of the population with a university education went from 9.5% in 1990 to 14.2% in 2009 in Latin countries. In the Asian tigers, it went from 10% to 20% during the same period.
The World Bank claims that GDP growth forecasts in countries in the region range from 3.5% to 4.5% this year, and in 2012 the inflation rates are stable 6% to 7% this year. Also according to the institution, the sovereign risk of Latin countries is low right now, and the risk of default on the part of nations such as Chile, Colombia and Peru is lower right now than on the part of France. The question, according to the World Bank, is how to make the relation between those countries and China more sustainable in the future.
““In this new context of lackluster economic performance in the U.S. and Europe, one key question is whether LAC can leverage its deepening connections with China and turn it into an important source of long-term growth,” says the World Bank’s chief economist for the region, Augusto de la Torre.
*Translated by Gabriel Pomerancblum
