Bumps in the road

The immediate outlook for Latin America has brightened in recent months as fears of a renewed crisis in the developed world have eased. But even so, while the region is likely to outperform most others over the next year or so, the path ahead will remain bumpy. In a number of countries, notably Brazil, Colombia, Chile and Peru, familiar concerns about the “twin-speed” nature growth are starting to re-emerge. These economies are vulnerable to a drop in commodity prices or a fresh spike in global risk aversion, although the scope for further policy easing if necessary limits the downside. By contrast, deep-seated structural problems mean that Venezuela and Argentina are likely to experience a much sharper adjustment over the next year or so. All told, we expect the region as a whole to grow by around 3% this year and 3.5% in 2013 – respectable by G7 standards, but well below the growth rates of 6% seen in 2010 and early 2011.