As it stands, the political scenarios playing out in the key economies
of Latin America, Mexico, and Brazil, stand to hinder and help things
"For the Mexican economy, we have a scenario that is not very promising," said
Eugenio Alemán, managing director-Latin America for Global Insight Inc. "Basically,
the Mexican economy needs several reforms - structural reforms like energy
sector reform and tax reform."
Both of those campaigns are facing dire straits in the Mexican Congress
as President Vicente Fox attempts to open up the energy sector to allow
development with the help of foreign capital. Attempts to wean the Mexican
economy from its dependence on the petroleum sector also are getting
gummed up in red tape, further delaying growth, according to Mr. Alemán.
It's no secret that Mexican fortunes depend on its northern neighbor,
especially its manufacturing. However, the U.S. lost another 17,000 manufacturing
jobs in November 2003, while the rest of the economy added 57,000 jobs,
the government reported. As those slow times continue for U.S. manufacturing,
Mexico's maquiladora industry and the rest of the country suffer along
with it - real GDP growth likely will only be 1.5 percent in Mexico,
according to BMO Financial Group's Outlook 2004.
"Basically that is the biggest problem in the Mexican economy," Mr.
Alemán said. "The manufacturing sector in the U.S. is still in a very
"It used to be the case that the Mexican economy would grow whenever
the U.S. economy would grow, and that is not happening right now," he
added. "The political environment is not conducive to strong growth next
year. Basically, the overall Mexican economy will grow just because the
U.S. economy will grow next year very strongly; but its growth has been
limited by the political system."
Nevertheless, Mexico will have growth, just not enough, according to
the Organization for Economic Cooperation and Development (OECD).
"Potential GDP growth estimates have been revised down to below 4 percent,
too slow for a country with low levels of income and productivity and
high rates of population growth, and too slow to narrow the gap in living
standards relative to other OECD countries," the OECD said in its Economic
Survey - Mexico 2003. "Furthermore, the delayed impact of previous reforms
is uncertain and is unlikely to raise potential growth sufficiently in
the near term."
Accordingly, the OECD predicts growth of only 2 percent in 2003 (not
much above the population growth of 1.5 percent, it noted) and about
3.5 percent in 2004. Global Insight is predicting a more-modest 3.1 percent
or 3.2-percent increase for Mexico.
The trend in Brazil is quite the opposite from its counterpart to the
north. With Latin America's largest economy at U.S. $1.34 trillion (according
to 2002 statistics from the CIA World Factbook), Brazil is rising from
severe but helpful fiscal restraints in the form of high interest rates
that curbed runaway inflation and helped the economy regain its footing.
One company delighted to see the changes is Whirlpool, which operates
several manufacturing plants in the country. "There are several positive
economic trends in Brazil, including continued lowering of interest rates,
declining inflation rates, and the passage in the Brazilian Congress
of several economic reform programs to deal with budget challenges," Whirlpool
said in its third-quarter earnings release. "In addition, lower interest-rate
financing initiatives from the Brazilian government, banks, and retailers
led to improved appliance order levels late in the third quarter. Order
levels are expected to continue to improve for the remainder of the year
and into 2004."
Whirlpool Latin America's sales jumped 7.4 percent, comparing third-quarter
figures from 2003 to 2002, on sales of $322 million. Excluding currency
translations, sales were up about 1 percent.
In its Outlook 2004, BMO Financial Group called for Brazilian GDP to
average 0.5 percent in 2003 and a full 3 percent in 2004. The country
owes much of the credit for those numbers to successful policies of the
nation's central bank, in particular its maneuvering of benchmark interest
rates, which in November 2003 moved down to 17.5 percent from 26.5 percent
in August 2003.
"Inflation seems to be very much in control," Mr. Alemán said. "The
central bank has moved very, very strongly to reduce interest rates.
There are signs of the Brazilian economy's recovering, and it's going
to post a decent growth rate for the next year, especially if agricultural
commodity prices remain as strong as during . The Brazilian external
sector is growing at a very, very fast pace."
As for the rest of Latin America, Argentina will be on its way up in
2004 to the tune of about 7 percent, basically because it had nowhere
else to go, Mr. Alemán said. Chile, the world's largest exporter of copper,
will enjoy the best growth rate (thanks to rising copper prices), while
the Venezuelan situation continues to look bleak, Mr. Alemán said.
As a whole, things look better for the region than they did in 2003. "Overall,
regional growth should become positive this year, with a modest 1.2-percent
growth" the BMO Financial Group wrote. "However, conditions are in place
to allow firmer growth of 3.4 percent in 2004.