Economic growth forecast for Latin America and the Caribbean

The World Bank has predicted 4.5 percent economic growth in Latin America and the Caribbean this year.

In the June 2011 edition of its “Global Economic Prospects,” the Washington-based financial institution said the region rebounded from the global economic crisis, growing at a three-decade high rate of 6 percent in 2010.

It said the Gross Domestic Product (GDP) growth is expected to ease to a “more sustainable 4.5 percent pace in 2011 before slowing toward 4 percent by 2013, a rate of growth that is consistent with underlying potential.”

The bank said the slowdown will be more pronounced in those economies that enjoyed the strongest rebound from the crisis, such as Argentina and Brazil, “as policy tightening contributes to cooling domestic demand.”

It said growth in the Caribbean will accelerate marginally to 4.1 percent in 2011, “reflecting continued strong growth in the Dominican Republic and the reconstruction-led expansion in Haiti.

“Growth in other Caribbean countries will be held back by the projected modest expansion in the tourism sector and in remittances,” the bank said.

As they put the financial crisis behind them, the World Bank urged developing countries, such as those in the region, to focus on tackling country-specific challenges, such as achieving balanced growth through structural reforms, coping with inflationary pressures, and dealing with high commodity prices.

“Developing countries have been resilient despite remaining tensions in high-income countries,” said Hans Timmer, director of Development Prospects at the World Bank.

“But many developing economies are operating above capacity and at risk of overheating, most notably in Asia and Latin America,” he added.

“Monetary policy has responded, but fiscal and exchange rate policy may need to play a bigger role to keep inflation in check,” he continued.

Timmer said inflation in developing countries reached almost 7 percent “year-over-year” in March, more than 3 percentage points higher than the low point in July 2009.

He said although domestic food prices in most developing countries rose much less than international prices during the 2010/11 spike – 7.9 percent since June 2010 versus 40 percent for international prices – local prices may rise further as international price changes slowly pass through into domestic markets.

In addition, Timmer warned that if the 2011/12 crop year disappoints, food prices may rise further, placing additional pressures on the incomes, nutrition, and health of poor families.

“The financial crisis for most developing countries is over,” said Andrew Burns, manager of Global Macroeconomics and lead author of the report.

“Efforts must now focus on returning monetary policy to a more neutral stance and rebuilding the fiscal cushions that allowed developing countries to respond to the crisis with counter-cyclical policies,” he added.

“Increasingly, medium-term prospects will depend on the kind of slow-acting social, regulatory and infrastructural reforms that generate improved productivity and sustainable growth,” he continued.

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