Last year, the region's economies benefitted from expanding world trade, high commodity prices and unusually attractive lending terms, but they grew at a slower pace than in 2004, the IDB said. That year, growth averaged 5.9% growth, it added.
Market consensus for growth this year is nearly unchanged at around four percent,' the IDB said. Argentina and Venezuela may lag, but Brazil and Mexico will grow at slightly higher rates, it added.
Current account balances are expected to weaken somewhat this year, as domestic demand recovers and the prices of oil and some commodity prices fall back to earlier levels.
"This means that fiscal trends, favorable until now, will shift in some countries, and any inflationary pressures will be harder to keep under control," the multilateral bank said.
Risks for the region this year include a possible slowdown in international trade, caused by an economic downturn in the US and China, oil price instability, and deteriorating international finance terms, the IDB said.
Moreover, past experience indicates that investors become skittish in the months leading up to elections, market swings are wider, and countries are more vulnerable to shifting international conditions, the bank said. A dozen countries in the region had or will have elections this year, it added.
Latin American and Caribbean countries remain heavily indebted, despite decreases in recent years, the IDB said. Average debt ratios have fallen by 19% of gross domestic product in the last three years, from 72% of GDP at end-2002 to 53% of GDP estimated for end-2005, it said.
Exports grew vigorously in 2005, as export volumes grew eight percent. Rising remittances from Latin Americans living abroad also increased, meaning that the region posted a positive current account balance for the third year in a row. The average external balance was 1.3% of the gross domestic product, the IDB said.
Average inflation for the region fell from 6.7% in 2004 to 5.5% last year. "Inflation stayed under control in 2005, despite renewed domestic demand and cost pressures from high oil prices," the IDB said.
In addition, the average fiscal deficit in Latin America has shrunk, from 3.3% in 2002 to 1.7% in 2005, the bank said. In general, monetary policies in the region have been oriented toward greater stability.
"Even with the credibility gains of monetary policies, lower inflation rates are also due in part to exchange rate appreciation in a number of countries," the IDB said. Appreciation trends were very strong in Brazil, Colombia, Chile and Uruguay, while despite abundant oil revenues, the exchange rates of Ecuador and Venezuela didn't change substantially in real terms over the past year, the IDB said. (DJCS via Comtex)
