A1256655220rJGDa

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A global perspective on Latin America Emily
Morris Senior Economist/Editor, Latin
America October 2006
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The EIU Editor/Economist/Analysts world
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The global outlook
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EIU global medium-term forecasttougher times
ahead
US GDP per head at PPP growth
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Key points

• OECD slowdown
• US growth slips over the next 18 months
• But Japan, then Europe, pick up some of the slack
• Emerging markets also slowing, but
• Most regions still performing well
• Debt has been substantially reduced
• Risks abound
• US slowdown could become a recession
• Interest rates rising globally end of easy money
• Oil worries volatile commodity prices

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The slowdown begins
Y on Y,
Growth in real GDP weighted at mkt exchange rates
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US Consumers take a break

• US to slow in 2006
• Consumer fatigue
• Spending from 3.9 in 04 to 1.9 in 07
• Higher interest rates
• Slowing housing
• Rising debt
• Exports up, imports slow
• As dollar weakens
• Recovery starting in 08

Consumer spending, change
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Euro zone Growth has returned
Economic growth, change

• Euro zone improvement
• GDP growth from 0.7 in 03 to 2.1 in 06
• Investment first
• Unemployment rate now falling
• Interest rates are rising
• Further to go
• Slight slowdown in 07
• Taxes will rise in Germany

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Japan Business recovery

• Japan has bounced back
• Domestic recovery
• Balance sheets, investment, hiring, spending
  better
• Investment from -5 in 02 to 4.3 in 06
• Supportive external environment China
• But monetary and fiscal tightening in 07

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Emerging markets issues

• East-central Europe
• Strong domestic demand and exports
• CIS (Russia et al)
• High commodity prices, but production stresses
  institutions
• Middle East
• Oil, tourism, and awash in cash war and
  uncertainty
• Africa
• Commodity boom, FDI can it last?
• Latin America
• Export boom, rising investment weak domestic
  demand, populism

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sovereign ratings never been better

• Strong external positions
• Current-account surpluses
• except Turkey, E Europe
• Currency appreciation
• Rising FX reserves
• Net external debt repayments
• Improved solvency / liquidity

Average EIU sovereign risk score
Average of 100 markets, scores range from 0-100
where 100 is high risk
Source EIU Country Risk Service
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Global signs of stress inflation is edging
higher
Benchmark rates 2 is top of central banks
comfort zone
USPCE core Y on Y, change EurozoneAll items Y
on Y, change
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central banks are tightening
Main policy interest rate

US Fed funds rate ECB refinancing rate BOJ OCR
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global interest rates are rising
Yield,
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and US house price gains slowing
Prices no longer rising by double-digits
Average April price 223,000
Existing house prices, change Y on Y
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Latin America
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Latin America in the global context a slowdown,
but better than before
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Improved solvency and liquidity
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Latin American projections2-year forecasts and
risks
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and medium term prospects
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Latin America external accounts
of GDP
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Latin America the longer term

• Structural factors
• Initial GDP per worker
• Demographics
• Human capital
• Geography
• Policy variables
• Macroeconomic management
• Regulation
• Institutions
• External environment
• Changes in the terms of trade

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Latin America long-term growth
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A global perspective

• is only part of the story