Originally published in the Dialogue’s daily Latin America Advisor

Q: The United Nations Economic Commission for Latin America and the Caribbean, or ECLAC, announced Dec. 13 that it expects Latin America and the Caribbean will have experienced 6 percent economic growth in 2010 and will see growth of 4.2 percent in 2011. Which countries will grow most in the year ahead and which will lag behind? Which sectors in the region will see significant growth in 2011 and which will struggle? Why?

A: Luis Oganes, managing director and head of Latin America Research at J.P. Morgan Chase & Co. in New York: “Latin America displayed remarkable resilience in activity indicators during 2010, prompting upward revisions to growth forecasts throughout the year despite the global growth deceleration since this year’s second quarter. Real GDP growth in Latin America is now expected to reach 5.9 percent year-over-year in 2010, well above the 4 percent originally penciled in for the region at the beginning of the year. Latin America’s ability to maintain positive growth momentum despite the global slowdown was likely related to the fact that growth in most countries in the region has been driven by a strong recovery in domestic demand, while the growth contribution from net trade is negative given the surge in imports. That said, Latin American exports certainly benefited once again this year from the commodities rebound post-crisis and the strong growth displayed by China, and will continue doing so next year. Indeed, with the exception of Mexico, commodities represent more than half of total exports from all major Latin American countries, with Chile, Ecuador, Peru and Venezuela even exceeding 70 percent. For 2011, the 4.1 percent year-over-year growth forecast for Latin America as a whole suggests that the regional pace of growth will remain above potential next year, helping to absorb any remaining economic slack. To be sure, the output gap that resulted from the short-lived recession in early 2009 has already been eliminated in Brazil by mid-year, and will close in Peru by end-2010 and in Chile, Colombia and Mexico during 2011. This will force policymakers to rein in monetary and fiscal stimuli in order to reduce inflation pressures.”

A: Roger Scher, professor of international relations and international political economy at Seton Hall University and former managing director of Latin American sovereign ratings at Fitch Ratings: “A slowdown will be driven by tighter macro policies, weaker commodity prices and slower growth in the advanced economies and China. A modest slowdown in Latin America and the Caribbean will be a good thing overall, reducing risks of inflation and an asset price bubble and ensuring that the region’s secular economic rise will continue in a sustainable manner. In general, Latin American countries oriented toward Asia, specifically China and India, will grow more rapidly than those oriented toward the United States and Europe. Capital inflows to most countries in the region accelerated this year. As a result, cautious Latin American governments have implemented measures to slow these inflows, including raising bank reserve requirements, which should continue to bite in 2011. Nevertheless, it will be difficult to manage policy priorities, as the concern over losing competitiveness due to appreciating currencies is causing Latin American governments to accumulate foreign exchange reserves. Also worried about economic overheating, China is implementing a host of measures to bring GDP growth down, thereby moderating demand for Latin American exports and especially affecting commodity exporters such as Venezuela, Argentina, Brazil, Chile and Peru. While certainly not making up for China’s slowdown, India’s economy should grow a buoyant 8.5 percent next year, contributing to demand for Latin American exports. The euro area will remain in the doldrums, while U.S. growth will slow modestly as the Obama fiscal stimulus peters out. Brazil’s economy should slow markedly to below 5 percent growth in 2011, due to slowing Chinese and European demand coupled with domestic measures to slow capital inflows. Mexico’s growth will remain paltry compared to other emerging markets at under 4 percent. Peru’s gangbusters economy should continue to grow smartly at above 6 percent (from above 7 percent this year) and Chile will see a similar story. Venezuela’s distorted economy will go the way of oil prices, as always, with growth being flat to slightly lower. Colombia will be buffeted by sluggish demand from Venezuela and the United States, while Argentina will see a slowdown amid weaker commodity prices.”

A: Santiago Maggi, chief investment officer at Bulltick Capital Markets in Miami: “I think we will see slower growth in 2011 than we’ve seen in 2010; mainly because China will have to deal with its overheating economy and this will have a direct impact on Latin American economies. In general, I see 2011 as very similar to what we’ve seen in 2010. I think the two main stories for 2011 will again be Mexico and Argentina. Mexico will benefit from a stronger than expected U.S. economy and Argentina will benefit from being Brazil’s neighbor, although Argentina’s main challenge will be to control the real inflation. The main risk for Latin America in 2011 is external and not domestic. The first and most dangerous risk is Europe. If for some reason Europe collapses (our view is that we will see a lot of volatility but the euro will not disappear), this will have consequences very similar to Lehman Brothers. The second and most probable external risk is China trying to control its overheating economy. A slowdown in China will have a direct impact in the region. There is no doubt that Latin America needs to invest heavily in infrastructure (airports, ports, railroads, roads, etc.) and I hope they start doing it in 2011.”

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