South American economic overview – March 10, 2009

General: Economic hard times have taken their toll on trade between the two largest economies in South America. In the first two months of this year, trade between Brazil and Argentina shrank 40% compared to last year. Exports from Brazil to Argentina fell to US$1.33bn in this period or 46.5% less than last year. Exports from Argentina to Brazil fell to $1.27bn, a reduction of 41.1%. Brazilian officials are crying foul, claiming protectionism by the Argentinean government. Without question, trade will be an important issue on the agenda when President Cristina Fernandez de Kirchner will visit Brazil in late March.

Argentina: Initial estimates for 2009 show a meager economic growth of 0.7%. Consumer confidence fell to a nine-year low of 29.8 in February. Automotive production in February fell 55.7% compared to last year and sales were down 39%. Problems in the agricultural have also surfaced again. The country is experiencing its worst drought in 50 years and farmers are withholding harvests to protest government intentions to take over the grain trade and to seek relief from export taxes on soybeans and other crops. The credit rating agency Standard & Poor's considers Argentina worse off than its neighbors and expressed concern about the country's financing ability in 2010 should the current crisis continue. 

Steel Production: 284,000 mt in January (-31.9% compared to last year)

Brazil: There is no question that the global economic crisis has hit Brazil much faster than expected. Industrial output in January showed the steepest decline in its recorded history. Central Bank officials predicted a growth rate of less than 1% for 2009. It is expected that the benchmark interest rate will be slashed by two percentage points later in March to induce some kind of economic growth. Bank of America attracted attention with its very negative assessment of Brazil's steel industry. It called Gerdau, the country's largest steel producer, its "least favorite company" in that industry. CSN was rated as neutral. On the brighter side, Exxon Mobile has announced that it will expand its drilling activities in Brazil this year to 4 million barrels a day.

Steel Production: 1.617 million mt in January (-45.6% compared to last year)

Chile: Officials in Chile are encouraged by Chinese statements that the Chinese industry will remain strong and that they will resume major imports of copper. In the meantime, the copper price was languishing at $1.6945 per lb as of March 6 on the New York Mercantile Exchange. GDP forecasts for this year show little or no growth at all. The government has a $19.5bn stimulus package in place and the benchmark interest rate by the Central Bank has already been cut by 3.5% this year to 4.75%. Further cuts are considered inevitable. Initial numbers for February point to a slowdown in inflation. Consumer prices fell by 0.4% from the previous month.

Steel Production: 60,000 mt (-59.9% compared to last year)

Venezuela: Despite President Chavez' insistence that his country is not affected by the global crisis, economic conditions are getting harsher. The inflation rate for food and beverage products alone hit the 40% mark in February. GDP grew 4.8% in 2008, the slowest pace in five years. The private sector saw zero growth last year, while the public sector expanded by 16.4%. Sales for cars and trucks fell 46.2% in February to 15,187 units and 11,056 units were produced. Over half of the automotive production comes from General Motors Venezolana. Crude oil prices have dropped about 70% since the high watermark in July 2007 and oil exports plunged 47.2% in Q4 2008. The government had to take $12.0bn from central bank funds to further finance domestic social programs.

Steel Production: 300,000 mt in January (-20.4% compared to last year)