The slowdown in the global economy is starting to bite from one end of Latin America to the other. The OECD forecasts that growth in the region in 2012 will slow to 3.2% from 4.4% last year. That would be the first deceleration in a decade. Just last week Argentina reported that its GDP growth in September was only one tenth of a percentage point higher than in the same month last year. Far to the north, Mexico said its third-quarter growth, at one half of a percentage point over the previous quarter had been its lowest since the first quarter of last year. Mexico, Latin America’s second largest economy, can at least comfort itself with the fact that its growth for the full year is likely to come in at 4%. Brazil, is looking at 2% growth for 2012, if it is lucky.
Mexico’s policy makers will have to wrestle with balancing cuts in interest rates to stimulate a sluggish economy with the risk of stoking inflation. That is a classic central banker’s dilemma, at least. Argentina, the region’s third largest economy after the other two, is facing problems as much of its own making as of the global slowdown’s. A poor grain harvest may have been outside the government’s control, but high inflation and import and currency controls on investment were not. The country’s long boom has come to an abrupt and ugly end this year.
The government’s newly lowered forecast of 3.4% growth for the year now looks optimistic. Private economists say 2% would be more realistic. If that is so, it would be a huge problem for Buenos Aires. Annual growth falling to 3.26% triggers $4 billion worth of payments next year to holders of Argentina’s GDP-growth-linked debt. Already embroiled in one international row over the accuracy of the country’s official inflation figures, another one on the GDP numbers now looks to be on the cards.