ECLAC projects economic recovery with 4.1% Growth in 2010 for LatAM & Caribbean.

Economic recovery from the international crisis in Latin America and the Caribbean will be quicker than expected a few months ago, with growth in the region projected at 4.1% next year, according to the latest ECLAC estimates.

In its annual report Preliminary Overview of the Economies of Latin America and the Caribbean 2009, the regional commission of the United Nations projects positive growth rates for most countries, but explains that there is still doubts about whether this recovery will be sustainable over time, given that the external scenario continues uncertain, which may affect growth expectations in the region.

“The worst of the crisis is behind us. The motors of growth have been turned on again, but we don’t know how long the fuel will last,” stated ECLAC Executive Secretary Alicia Bárcena, in presenting the report.

The most notable recovery will take place in South America and Central America (with the exception of Mexico), which next year will have growth rates of 4.7% and 3.0%, respectively. Economic growth in the Caribbean is expected to be lower (1.8%).

According to ECLAC, Brazil will top the list of countries with higher growth in 2010, with expansion estimated at 5.5%, followed by Peru and Uruguay (5%), Bolivia, Chile and Panama (4.5%) and Argentina and Surinam (4%).

Mexico, Costa Rica and the Dominican Republic will grow 3.5%.

Overcoming the crisis has been swifter thanks to a set of countercyclical policies that helped countries address the external turbulence effectively, says the report. These policies included reducing interest rates, increasing State-owned bank loans, expanding public expenditure and implementing a broad array of social programs, such as consumer subsidies and support for low-income households.

The ECLAC report also examines in detail the evolution of the region’s economies in 2009, as the crisis hit, putting an end to six years of consecutive economic growth in Latin America and the Caribbean. The region’s economies will contract this year by -1.8% (better than the -1.9% estimated last July), which means that GDP per capita will fall about 2.9%

Unemployment in the region will also be higher than in 2008. This year, it will rise to 8.3% (lower than the 9.0% projected earlier this year) of the economically active population, with a deterioration in the quality of new jobs.

The steepest fall in economic activity this year will take place in Mexico and some countries of Central America and the Caribbean. ECLAC expects positive average growth rates for South America, with the exception of Chile, Ecuador, Paraguay and Venezuela. In any case, growth rates this year will be significantly lower than those experienced between 2004-2008 in all countries of the region, states the report.

For 2010, better growth expectations and the higher prices of some commodity exports from the region will boost fiscal income in the region, improving the fiscal balance.

As growth consolidates, there may be a moderate inflationary pressure that could lead central banks to restrict monetary policies perhaps late in the year.

Economic growth will push up employment and probably improve its quality, says the report. Unemployment could drop to around 8% in 2010, about midway between the unemployment levels before and after the crisis, and this will have a positive effect on poverty indicators, asserts the Preliminary Overview.

Beyond the short-term, ECLAC stresses that the current crisis will lead to profound changes in the international scenario that will create a less favorable environment for growth than that experienced in the region between 2003 and 2008.

This poses the urgent need to redefine standards for productive and trade specialization, encourage innovation, include more know-how and diversification in products and seek new destination markets, with greater participation of Asian countries.

Likewise, nations need to define the role of the State and provide it with the resources and instruments they need to prevent and address crises as well as promote sustainable economic and social development.