South American economic overview: July 2011

Argentina: Economic growth seems to be steady; the latest official numbers show a double digit growth rate from Q4 2010 to Q1 2011, and other indicators show encouraging signs as well. Consumer confidence jumped to 55.6 in May and sales of durable goods are steadily improving. In southern Patagonia, a field containing 150 million barrels of shale oil has been discovered, marking the largest find in 20 years. Inflation, the old and all-too-familiar nemesis of Argentina, was reported at 9.7 percent in March--the lowest rate in 12 months. Everything is fine then, is it not? Well, the nagging doubts that have been cast on the accuracy of official figures generated by the National Statistic Office refuse to go away, while independent polls still show a Venezuela-like inflation of around 25 percent.

Brazil: The government's efforts to hold down consumer prices prompted yet another increase of the benchmark interest rate in June; it was the fourth one in as many months and the rate now stands at 12.25 percent. By international standards this is a relatively high rate and attracts a lot of foreign investment, and it is expected that last year's record foreign investment volume of $ 48.5 billion will be exceeded this year. Additionally, all of this strengthened the Brazilian currency as well--so far this year, the real has appreciated more than 8 percent to the US dollar. Economic growth remains strong, but the inflation rate is creeping up to an uncomfortable level--the rate in May is slightly above the target rate of the Central Bank (4.5 percent, +/- 2 percent). Consumer confidence in June was at 118 points, or 2.3 percent higher than in May.

Chile: The reconstruction from the February 2010 earthquake is in full swing, noticeable in the strong economic growth of 9.8 percent in Q1 2011 compared to a year ago--it even exceeded China's growth during the same period by one percentage point. The central bank is keeping an eye on inflation and raised the benchmark interest rate in June by 25 basis points to 5.25 percent, and it had already increased interest by 50 basis points each in the three previous sessions. Inflation is modest but on the rise and within the upper tolerance margin of the central bank's 3 percent (+/- 1 percent).
 
Venezuela: Economic growth in Q1 officially ended a two-year long bitter recession. Overall conditions, however, have hardly changed. The country is afflicted by an electricity shortage, water shortage, crumbling roads, endemic corruption and capital flight, and Caracas has the highest murder rate in South America. There is no much-needed foreign investment to speak of, while the Venezuelan oil industry is languishing at around 2.7 million barrels a day (b/d)--the lowest level in eight years. Plus, investment in oil production is insufficient to maintain even this reduced output and the government's target of 4 million b/d seems more unrealistic by the day. However, Venezuela still supplies Cuba with 115,000 b/d and in return gets medical help through Cuban doctors and support in its intelligence service. Right now, the largest undeveloped oil fields in the world are the Orinoco fields. Crude oil represents 95 percent of the country's exports and 30 percent of its GDP. 

Source: World Steel Association; e = estimated