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LATIN AMERICA: "A tale of two Mexicos: Growth and prosperity in a two-speed economy" report

LATIN AMERICA: "A tale of two Mexicos: Growth and prosperity in a two-speed economy" report. 26-page Executive Summary by McKinsey & Company.

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back to index backLATINtalk July,  2005


Latin America: Setbacks inevitable

The crisis year of 2002, when Argentina suspended its foreign payments and Brazil suffered a severe crisis of confidence, was followed by a year of stabilization in 2003 and a year of high growth momentum in 2004: Latin America's GDP expanded by 5.6 %, the highest rate since 1997. A closer look reveals, however, that a number of things have changed for the better in recent years while much is still awry.

A positive point is that, today, foreign debt stands at only 150 % of exports of goods and services – a drop of 30 percentage points in only one year and a crucial factor towards creating lasting macroeconomic stabilization in the region.

In the meantime, goods exports account for 24 % of Latin American GDP, indicative of the region's growing readiness to profit from the advantages of the international division of labor. At the same time, though, countries such as Venezuela and Argentina signal that the danger of resorting to old recipes”, such as state intervention and the opportunistic disregard of contracts, still exists.

Furthermore, the government resignations in Ecuador and Bolivia, and the Peruvian population's dissatisfaction with the results of economic policy to date are signs that stable macro data or high GDP growth alone are not sufficient to generate lasting development with positive welfare effects for the entire population.

Finally, following the important structural changes and institutional reforms of the last 10 years, reform weariness is already rearing its head again in countries such as Brazil and Mexico, and could throw development in these countries back in the medium term.

For this year, though, we are still optimistic. Brazil and Mexico should record economic growth of some 3 %. Colombia and Ecuador look set to grow by 4 %. In Chile we expect growth to slow slightly to 5.3 %, while Argentina and Venezuela will continue to recover from the deep recession of 2002/2003, expanding at rates of some 6 %. All in all, we forecast economic growth in Latin America this year of 3.9 %.

To download the entire global research report, click here.

Source: Allianz Group - GAI

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