South American economic overview May 11, 2010
Argentina: GDP growth and industrial production are recovering from a slow growth earlier this year. The latest numbers are encouraging, even though economic statistics in Argentina will always be considered dodgy as long as the president's name is Kirchner. After having forced the resignation of the Central Bank President, a close friend of President Kirchner was appointed to the post. This could adversely affect much needed investment from overseas since the central bank seems to be less independent now than it used to be. The trade surplus in March was the lowest in almost four years. A ten-day strike at the world's largest grain exporting port appears to be the principal reason for the decline.
Brazil: The economy continues to expand at a rapid rate. The government rather modestly still expects an annual growth of 5.5 percent this year but the International Monetary Fund (IMF) puts its expectation at 5.8 percent. In reality, current growth points to an increase in GDP of over 6 percent. Industrial production rose impressively in February and March. General Motors announced that it will invest 1.4 billion reals ($782 million) in two factories in the state of Sao Paulo to increase production and broaden its vehicle lineup. PSA Peugeot Citroen will invest a similar amount over the next three years. Sales of light vehicles rose to a record 3.01 million units last year. Almost inevitably, central bank officials and the IMF have pointed to an imminent overheating of the economy. The inflation rate is above the government's target and nobody was surprised when the benchmark interest rate was increased to 9.5 percent the end of April. This marked the first interest rate increase since July of last year when it was put at a record low of 8.75 percent.
Chile: The economic impact of February's deadly earthquake is becoming more apparent. The total cost of the quake reconstruction is now estimated to be around $30 billion; and the finance minister has reiterated that there will be no problem for the government to raise its share (about $10 billion). Overall, the Central Bank has slightly lowered its forecast from 4.50 percent to 4.25 percent. The inflation rate is expected to stay at a modest 3.7 percent. That is why it is widely expected that the record low benchmark interest rate of 0.5 percent will stay at this level for a while.
Venezuela: The country's economic woes continue unabated. Venezuela fell into recession around Q2 of last year and it will likely not emerge from it before Q3 of this year. The import market collapsed by forty percent in Q4 2009 and the manufacturing sector shrank by seven percent during that same time. Given the lack of foreign reserves and major shortages of electricity, this picture is unlikely to have changed much in Q1 of this year. Inflation continues on it runaway course. Initial numbers for April could put the inflation rate at over thirty percent The only entity that sees a slight economic growth this year is the government. Most private forecasters see another year of a shrinking economy in store for Venezuela.
China agreed to provide a $20 billion loan to be repaid with future oil shipments. The government is turning increasingly to an off-budget development fund called Fonden to cover its expenses. Petroleos de Venezuela S.A. and the central bank put in a combined $13 billion into this fund last year alone.