Economic Growth in Latin America Still Strong, World Bank Says

Economic growth in much of Latin America and the Caribbean remains strong, reports the World Bank. In a new report released November 16, the bank said the strong growth reflects the region´s “supportive external conditions” and an improved “domestic policy environment.”

Despite a more moderate rate of expansion, economic activity is well above the 2.5 average growth rate in the region of the preceding 20 years, the bank said.

The report estimated that economic activity in Latin America and the Caribbean increased by some 4.5 percent during 2005, substantially slower than the 5.8 percent recorded in 2004, but much faster than the region´s 0.4 percent average growth rate during the preceding three years.

The region´s growth was boosted by both strong world demand for the region´s exports (particularly oil, coffee and copper, which account for 65 percent of the region´s commodity exports) and low interest rates, according to the report, Prospects for the Global Economy.

Domestic factors that contributed to the strong performance include previous efforts to open the region to international trade, more responsible budget policy, the introduction of more flexible exchange rates and lower inflation.

A substantial reduction in investor´s perceptions of the risk associated with the region also has contributed to improved investment (up 11 percent) and increased capital inflows, according to the report.

The bank projected regional GDP would increase by 3.6 percent a year during the period 2006-2015, and per capita incomes would rise by 2.3 percent on average during the same period.

For economic performance in the region to improve further, the bank said national governments will need "to consolidate recent policy improvements and put in place key structural micro-policies (in particular, upgrading infrastructure and education and reducing the cost of doing business) to improve competitiveness."

The bank also estimated the world´s GDP would grow by 3.2 percent in 2005, down from 3.8 in 2004, and projected stable growth in 2006 prior to a strengthening in 2007.