South American economic overview – January 13, 2009

General: After a promising start in 2008, the region was engulfed by the global economic crisis and 2009 will likely go down as a very weak year. The United Nations Economic Commission for Latin America estimates that the overall growth for the region will not exceed 1.9% for 2008. Half of the Latin American countries will show their slowest growth since 2002 with Guatemala and El Salvador being especially hard hit. Uruguay's growth of 11.5% was the highest for the region last year. A big factor for this expansion was the construction of a $1.0bn paper mill by Botnia of Finland.

Argentina: The International Institute of Finance considers Argentina one of the worst affected Latin American countries during the current global economic crisis. GDP growth is still expected to come in at around 6.5% for 2008, but this year's forecast ranges from minus 0.4% to +1.6% only. Last year closed on an inauspicious note -- car production in December fell to 26,716 units or 47.2% less than in December 2007. Automotive sales in December declined by 29.1% from the previous year and car exports fell 41.7%. According to the government, inflation was contained somewhat in December but unofficial sources put the "real" inflation still at around 20%. Consumer confidence fell 5.3% in December from the previous month and 28% from 2007. 

Steel Production: 391,000 mt in November, a drop of 20.2% from November 2007. In the first eleven months of 2008, 5.3 million mt were produced, or 7.7% more than last year.

Brazil: Trying to find a way to calm inflationary tendencies and maintain some kind of economic growth, the Central Bank left the benchmark interest rate unchanged at 13.75%. Banks have restricted credits with predictable consequences. Retail sales in December dropped for the first time in eight months, industrial production is in a slump and big corporations such as mining giant Vale as well as automakers Fiat and GM have put thousands of workers on furlough, scaling back production and reducing investments for 2009. Last year saw record exports as well as imports with the trade balance falling 38% compared to the previous year. GDP grew only 1.8% in Q3 compared to the previous quarter. First projections for 2008 show a growth of 5.9% but the outlook for 2009 looks decidedly darker. According to analysts, growth will be 3% at best.

Steel Production: 2.3 million mt in November or 19.1% less than November 2007. In the first eleven months of the year 32.1 million mt were produced or 4.2% more than last year.

Chile: In order to support the economy the Central Bank cut the benchmark interest rate by a full percentage point to 7.25%. But economic growth is grinding to a halt. Preliminary numbers show a scant 0.1% in the 12 months up to November 2008. Industrial output contracted in November compared to the previous year. Exports are slowing down especially, the all-important copper shipments. Exports fell 24% to $3.6bn on the twelve months leading to December.

Copper Price: $1.4560 per lb as of January 9 on the London Metal Exchange for a three month forward deal.

Venezuela: Inflation remains staggeringly high but it is only the third-worst in the world -- Zimbabwe and Iraq are surpassing Venezuela. Crude oil prices are falling and will force the government to sharply cut its exorbitant spending. Allocations of US dollars at the officially pegged rate of 2.15 for foreign travels will be cut in half. Anything above that will be converted by the unregulated exchange rate. The Finance minister has hinted at a devaluation of the bolivar. GDP in 2008 will likely have grown 4.9% only. Consumption is expected to have grown 6.3% in 2008, down from 16.1% in 2007. Gross capital fixed investments will have contracted 2.1%  last year after expanding 25.4% the year before. But the country still holds $37.2bn in international reserves and $9.6 in the National Development Fund.

Steel Production: 350,000 mt in November or 18.5% less than last year. In the first eleven months of the year, 3.9 million mt were produced or 13.9% less than last year.