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POLITICAL ECONOMY
S. America at risk from slow growth: Fitch
by Staff Writers
Rio De Janeiro (UPI) Mar 11, 2013


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Latin America is at risk from slow growth, continued dependence on commodity prices and potential impact of the fiscal standoff in the United States, Fitch ratings agency said.

Fitch said slow global growth, which the agency called a "principal macro risk," was exacerbated by the fiscal standoff between the U.S. Congress and U.S. President Barack Obama's administration.

Fitch issued its risk assessments for Latin America in an inaugural edition of Fitch Ratings' LatAm Risk Radar.

Added to those risks were implications for Latin America of continuing problems in the European Union, especially the 17-country region using the euro as a common currency.

The 27-nation European Union is battling multiple crises in member nations affected by the economic downturn and is having to inject cash as economic bailouts for the worst affected countries, including Greece, Ireland, Portugal and Spain. Italy is also poised for a political stalemate likely to affect its economy and trade outside the European Union, including Latin America.

Before the eurozone crisis worsened last year, the European Union and Latin America's Mercosur trade bloc were seeking closer trade links, including a trans-Atlantic free trade zone. Plans for an ambitious trade haven envisioned by both sides have been shelved indefinitely, though sporadic talks on a possible deal continue.

The biggest deterrent to closer trade ties with Europe for Latin American planners has been the adverse impact of economic integration within the eurozone. Had the European Union and Latin America opted for closer trade ties, say analysts, Latin America would be sharing Europe's woes.

Fitch also cited the reasoning advanced by regional economists for Latin America's lackluster performance in some sectors.

Downside risk in Latin America remains due to the region's continued linkage to global conditions while strong domestic demand continues to fuel growth in leading economies of South and Central America.

"A prolonged eurozone recovery and the effect of China's growth and its commodity demands are the highest risks in terms of urgency and potential impact on Latin America," Fitch said.

Fitch Regional Credit Officer for Latin America Peter Shaw said, "Brazil, Chile and Peru are most affected through trade with Europe and China." In contrast, Mexico is more linked to the United States and responsive to fiscal and political developments in Washington.

Household debt has been rising in Latin America, fueling the rise in regional demand, but the phenomenon can affect banks' asset quality and also depress demand in the longer run.

Meanwhile, Latin American nations are finding they are increasingly dependent on China's growth and its potential impact on demand for commodities from the region.

Most Latin American nations have announced ambitious plans to shift away from dependence on raw materials exports to manufactured exports, with mixed results.

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