By Peter Tase
In early May, BBVA Bank Paraguay presented its Latin American economic growth outlook for 2013 and 2014, predicting the economies that will lead global growth. BBVA estimates that the pace of global development in 2013 will be 3.3 percent, only a tenth of the estimated growth in 2012. In 2014 it will reach rates close to 3.7%, although associated risks will tend to go downhill.
Taking into consideration these results, Paraguay’s favorable position resurfaces again in the spot light, as this year’s economic growth is expected to exceed 10 percent, the largest in the region. Another positive outcome for Paraguayan economy is its expectations to grow 4 percent above average in Latin America, including the controlled inflation of 6.6 percent. The Dollar exchange rate is expected to slightly increase next year, reaching 4,380Gs./USD, and this year it will continue at 4,160 Gs./USD.
Growth From an Increasing Domestic Demand
Domestic demand will allow a sustained growth in the region. Latin American GDP will grow if Brazil’s recovery will end soon. Despite some moderation in the first months of the year, indicators of confidence continue to rank high in most of Latin American countries. Due to the added value in the region, growth rates will continue to grow in the upcoming quarterly periods, while Brazil will join again the economic growth in the rest of the region, even though the latter’s case is less optimistic than its neighboring countries.
In 2013, the three Andean countries have marked a strong growth, the recovery of Paraguay and maintenance of a strong momentum in Panama are two other positive indicators. Domestic demand continues to be the main engine of growth in the region. Therefore Latin America’s growth will increase from 3.5 percent in 2012 to 3.9 percent in 2013 and in 2014.
In addition to a number of positive structural changes observed over the last few years, the strength of domestic demand will continue to be supported by a strong labor market and credit. Domestic Demand will benefit from salary increase and reduction of unemployment and informality. The available crediting options it’s an initiative in process without an increase in defaults.
Inflation will be maintained by general banks within desirable ranges in the next few years. In most of the countries inflation is out of control expect in Peru and Colombian. In Chile and Paraguay inflation was maintained below the target range, and in Mexico, Brazil and Uruguay it exceeded the target range.
According to Dr. Juan Carlos Zárate Lázaro, a Paraguayan economist, “the region should promote financial reforms in order to increase productivity, strengthen the long-term growth and reduce vulnerability from external shocks.” During the first months of 2013, inflation brought a downside growth in Peru, Chile and Colombia and is currently slightly above the target of 2 percent, in Peru, it was 2.6 percent in March, and slightly below the target in Chile, Paraguay and Colombia.
In Paraguay, the reaction of policymakers and greater demand pressures should allow inflation to reach 4.5 percent inflation at the end of 2013 and 2014, near the country’s inflation target.
Latin America has achieved high economic growth in recent years, accompanied by a substantial reduction of poverty and a sharp rise of the middle classes. However, such a high growth was driven 85 percent by the advantages of labor force. If the region wants to consolidate the high growth rates it has to recognize that a sustainable growth of income per capita cannot be based only in amassing of capital and employment growth, but it also requires an efficient and improved productivity.
Global growth is gradually recovering, but unfortunately mixed prospects of major economies are slowing the improvement of an increase in Gross Domestic Product in 2013-2014. The World’s GEDC growth in the first trimester of 2013, slightly exceeded 0.7 percent, in the fourth quarter of 2012, it was 0.6 percent. Available indicators point to a growing diffusion of economic activity especially within more developed economies, where the euro zone again is falling behind compared to the U.S. and even Japan. While in 2010 and 2011 Latin America’s growth reached 6.2 and 4.4 percent respectively, this year the region is expected to grow at 2.9 percent.