Domestic demand offsets external weakness

Growth in Latin America has continued to rebound in recent months. But while the economy is on course to expand by about 3% y/y in Q1, the pace of growth remains far below the 5-6% y/y rates that were registered in 2010-11. What’s more, the drivers of growth have become increasingly unbalanced. Although strong domestic demand has been sufficient to offset a negative drag from net trade, the growth spurt has come at the expense of larger current account deficits, notably in Brazil and Colombia. As a result, we doubt that the recent acceleration will be sustained. We expect regional GDP to expand by about 3% this year, up only a touch from last year’s 2.7% increase.