Tuesday, November 25, 2014

Economist Magazine: The Great Decleration (Latin America)

When we talk about the battle against deflation and stagnation going on around the world, it appears we can add Latin America to to list. This article in The Economist talks about it. So we have Japan, Europe and China struggling. Add Russia in there where the ruble is dropping like a rock. Now we learn that Latin America is falling behind expectations. Some quotes, then a comment. Readers should read the entire article for full context.


"IT WAS great while it lasted. In a golden period from 2003 to 2010 Latin America’s economies grew at an annual average rate of close to 5%, wages rose and unemployment fell, more than 50m people were lifted out of poverty and the middle class swelled to more than a third of the population. But now the growth spurt is over. What some worried would be a “new normal” of expansion of 3% a year is turning out to be far worse."
"The region’s economies will on average grow by only around 1.3% this year. Analysts continue to slash their forecasts, as they have done for the past two years (see chart). They now expect only the mildest of recoveries next year: both the IMF and the World Bank foresee growth of just 2.2% in 2015. Latin America is decelerating faster than much of the rest of the emerging world, points out Augusto de la Torre, the bank’s chief economist for the region. Alejandro Werner, his counterpart at the IMF, sees growth averaging just 2.7% over the next five years."
.  .  .  .  .  .  .  .  .
"What does seem clear is that the region is suffering a structural supply-side shock. Many economies have been operating close to capacity, points out Mr Werner. So demand-priming stimulus—such as Brazil’s loose fiscal policy or Peru’s recent giveaway of an extra bonus to public employees—looks mistaken. Fiscal balances have weakened by an average of three points of GDP since the 2009 recession."
My added comment: 
So Latin American countries appear ready to ramp up more loose money policies in response to economies weakening more than expected. This is a trend around the world. Projected growth keeps coming in below forecasts and policy makers keep responding with the only thing they know to do which is more stimulus of one kind or another.
It seems unlikely that the US will somehow lead the world out of this global weakness. The odds are that the US will join in the weakness again without the QE stimulus from the Fed. US Bond holders are concerned about what happens when intererst rates rise. The next two quarters GDP will obviously be very important. 
More and more it looks like 2015 is going to be an important year. Economies everywhere are struggling. More and more stimulus is added everywhere to try to revive things. But at some point, if it becomes clear that stimulus is failing, things could get messy. We will follow it all in 2015 here.

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