1995-96: REVIEW AND OUTLOOK : Mexico, Other Countries Can Expect Growth
The Latin American economy should bounce back this year along with Mexico, and no one would be happier than Fortune 500 companies such as General Electric Co.
The Mexican crisis and the ripples it sent south hurt sales of a multitude of consumer products--from light bulbs to washers, dryers and refrigerators--produced by GE especially for Latin American consumers.
GE’s light bulb sales dipped 9% in Mexico in 1995, and big-ticket items fell 40%. The “tequila effect” from Mexico’s peso collapse knocked its entire Latin American sales for a loop, although the decline was not as drastic as in Mexico.
Last year’s exports of U.S. goods and services to Latin America still came to $90 billion--but the growth was flat, mainly because sales to Mexico, which account for half of all U.S. shipments to Latin America, were down 10%.
Thus the growth predicted for this year translates into higher demand for U.S. products. And most economists see a 3% gain for Latin America in total output of goods and services in 1996, up from 1.5% in 1995. Mexico may see 2% growth, after having its economy shrink 7% in 1995, said Larry Goodman, an economist with Salomon Bros. in New York.
Indeed, GE de Mexico President Kenneth Brown says the region will soon resume its growth rate of three times that of the United States in terms of sales of GE products. He says Latin America will make up 50% of GE’s overseas sales--compared with 36% today--by the end of the century.
Some forecasts for this year:
* Mexico, after experiencing a devastating 7% decline in output of goods and services, is poised to reverse itself and grow 2% this year--as long as foreign investment returns.
* Chile will continue to earn its sobriquet “Switzerland of South America” with its sound financial system, rising standard of living and growing exports. Growth will reach 6.5% or more, according to Salomon Bros.
* Despite Colombia’s continuing narco-political soap opera and inflation rate of 20%, that country’s economy will be among the hemisphere’s leaders in 1996. Billions of illicit-drug dollars, oil revenue, plus farm exports such as bananas and coffee, will boost growth to more than 5.5%.
* The stage is set for a strong recovery in Brazil, which has begun to emerge from recession since cutting inflation from nearly 1,000% a year ago to 25% currently, according to brokerage Bear, Stearns & Co. With a newly stable currency, economic output could grow by 5% in 1996.
* Argentina, which suffered in 1995 from Mexican spillover, should recover. That’s welcome news: Its unemployment rate hit 18% last year, partly because privatization of former state-run industries put many workers on the streets.
The region will also push its trade ties with Europe and North America, as Chile lines up for membership in the North American Free Trade Agreement and Mercosur, the trade bloc anchored by Brazil and Argentina, fleshes out a new agreement with the European Union. Trade is seen as vital to fulfilling Latin America’s potential.
“We want Latin America to be like Asia, like Malaysia and Thailand, where growth is 6% to 9% annually, year in, year out,” said Gary Hufbauer, senior fellow at the Institute for International Economics in Washington.
