Hidden vulnerabilities

Latin American GDP growth slowed to its lowest rate since 2009 in the first quarter of this year and, while we expect to see a gradual recovery over the coming quarters, mounting vulnerabilities will prevent a strong economic rebound. Weaker growth in China will weigh on demand for the region’s commodities, while credit growth needs to cool in some countries. At the same time, the persistent strength of local currencies will continue to depress manufacturing in many economies. Policymakers generally have space to implement stimulus measures to support growth, meaning that interest rates will remain lower than the market currently anticipates. But even so, Latin American GDP growth is likely to be lacklustre at best for at least another 18 months. We’re forecasting an expansion of 2.8% in 2013 and 3.2% in 2014 – well below the average growth rates of 5.0% or so in 2010-11.