Latin America poised for economic rebound

Reporting from Bogota, Colombia — 

From appliance stores in Brazil to auto assembly lines in Mexico, signs are evident that Latin America has seen the worst of the global economic crisis and is poised for solid expansion.

The region is expected to post economic growth of 4.1% next year, according to a forecast released Thursday by the United Nations’ Economic Commission for Latin America and the Caribbean. That’s a stronger rebound than previously anticipated.

Emerging powerhouse Brazil is expected to lead the way with projected gross domestic product growth of 5.5% in 2010. It should be helped by strengthening foreign demand for its oil, soybeans and other commodities, as well as increased spending by an emerging consumer class that’s helping to keep Brazilian factories humming.

“The most encouraging signs are a recuperation of manufacturing and in foreign trade over the last two quarters,” said Alicia Barcena, the U.N. commission’s executive secretary. “Brazil began to show progress six months ago.”

The agency, which is based in Santiago, Chile, also expects strong growth of 5% from Peru and Uruguay next year. The economies of Bolivia, Chile and Panama are projected to expand 4.5% in 2010.

Even Mexico, whose deeply troubled economy could contract as much as 6.7% this year, will probably outpace the U.S. in 2010. The U.N. commission expects the Mexican GDP to expand 3.5% next year. The U.S. economy is projected to grow at just a 2% rate, according to a recent UCLA forecast.

Hit hard by the global banking crisis and a drop in global demand for commodities earlier this decade, Latin America’s total output of goods and services is expected to shrink 1.8% this year, the commission said.

But the region should recuperate faster this time compared with past global crises, Barcena said. She credited swift government intervention throughout the region to keep credit flowing and to boost public spending.

Those policies included reducing interest rates, increasing lending by state-owned banks, expanding public expenditures and implementing a broad array of social programs, such as consumer subsidies and support for low-income households.

Still, next year’s expansion won’t be enough to fully address social challenges and keep pace with population growth. That would require 5% annual growth, which the region nearly averaged (4.7%) during its boom years from 2003 to 2007, Barcena said. Unemployment in the region will remain a trouble spot, topping 8% this year.

The rosy growth projection for Brazil is just the latest in a string of positive news for the South American giant in recent months. In October, Rio de Janiero was selected to host the 2016 Olympics, while billions of barrels of new oil reserves have been discovered off the nation’s coast.

Meanwhile, Mexico has been slammed by the downturn in the United States, the biggest customer for its manufactured goods. The drop in U.S. auto sales has hit Mexico particularly hard because it is a major producer of vehicles sold in U.S. showrooms.

Slumping remittances have hurt as well. Through October, Mexican laborers working outside the country, mostly in the U.S., sent home $18.1 billion to their families in Mexico, 16% less than in the same period in 2008.

Other remittance-dependent economies, including Honduras, Guatemala, Nicaragua and El Salvador, are forecast to lag behind the region with anemic growth of 2% or less next year, the United Nations commission said.

The report highlighted some unusual winners.

Bolivia had the best-performing economy this year, growing a projected 3.5%. Barcena cited rising prices for minerals, including silver in the San Cristobal mine.

She also credited the government of President Evo Morales for being “very careful with its public finances” and investing wisely in social and fiscal stimulus programs, including monthly welfare checks to its poorest families, which in turn has boosted consumption.

Barcena said Latin America still faced challenges and could be hurt from the fallout from developing crises in countries such as the United Arab Emirates and Greece.

“We see things as improving, but there could be stagnancy as well if the world recovery isn’t as dynamic as we’d like,” Barcena said.

Kraul is a special correspondent.