Latin American economic overview July 6, 2010

Argentina: The economy appears to be on a solid rebound; however, the pesky issue of inflation has not gone away and is casting doubt on short term economic prospects. Government figures show an already high consumer price increase of around ten percent; but many economists, including a former central bank president, put the rate at 25 percent minimum. This would make it not only the second largest inflation rate in the region- but also in the world. Government spending alone increased 34 percent this past April over last year. Automobile production in May rose 40 percent over last year driven by rebounding exports. Shipments to Brazil rose 69 percent in May from the previous year.

Brazil: Economic growth in Q1 was an exceptionally strong 9.0 percent over last year, but consumer spending in April fell by a steep 3.0 percent- indicating a moderation of Brazil's growth. The Central Bank has been concerned about mild inflationary tendencies for a while now and it is expected that the benchmark interest rate will yet again be increased later this month. It would mark the third straight interest hike and the rate will likely go up to 11.0 percent.

Chile: February's earthquake has left a ravaging impact on the Chilean economy in general and the industrial production in particular. A glaring example is crude steel production. Not a single ton was produced in May. But May also saw a turning point of sorts. Industrial production grew for the first time since the earthquake. Retail -and industrial sales experienced a growth as well. All in all, preliminary numbers show that the economy grew 7.1 percent not only in May, but for the past 12 months. This will more than likely produce another interest rate hike in July after the central bank had gone up half a percentage point in June already, fixing the benchmark interest rate at 1.0 percent. Ecstatic analysts pointed out that the economy clearly has surpassed not only pre-earthquake growth rates but also levels seen before the global recession set in.

Venezuela: The economy keeps shrinking and inflation is worsening. Venezuela has the dubious distinction of the world's highest credit insurance rates for government issued bonds. It even exceeds the premiums for Greek government bonds. The bolivar is losing value almost daily in the "parallel" market. Since January, when the currency system was reformed, the bolivar has lost almost 50 percent in the black market. Whoever can afford to, switches his assets into US dollars in order to have some kind of defense to the continuing inflation. The International Monetary Fund now declares Venezuela as the country with the highest inflation rate even surpassing Zimbabwe. The African country's 2009 inflation rate of 5 billion percent has officially been reduced to 9.8 percent so far in 2010. Some experts find this development a bit hard to follow, but Venezuela's inflation rate of over 30 percent is disastrously high by any measure. Shortages of basic food items, especially in government run stores, continue to make life hard on the consumer. At the same time, opposition media pointed out that 30,000 tons of government imported food items are rotting away in Puerto Cabello alone.

*year-on-year

Source:  World Steel Association; e= estimated