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GDP Outlook 2008: Venezuela Worst, Panama Best

WORST & BEST: Presidents Hugo Chavez of Venezuela and Martin Torrijos of Panama lead the worst- and best-performing economies next year, the IMF forecasts. (Photo: Panama President’s Office)

Venezuela’s oil boom is coming to an end after several years of strong economic growth, the IMF predicts.

Venezuela, Latin America’s fourth-largest economy, will have the lowest economic growth rate anywhere in Latin America next year, while Panama will have the highest growth, the International Monetary Fund predicts.

Venezuela’s GDP will only expand by a mere 2.0 percent in 2008, the IMF says in its latest World Economic Outlook, released last week. That follows four strong years with average economic growth of 11.3 percent, according to a Latin Business Chronicle analysis of IMF data for the 2004-07 period.

That is the worst performance since the 2003 (when the economy declined by 7.8 percent). The slowdown comes as Venezuela also is expected to post the highest inflation rate in Latin America next year.
Venezuela’s growth rate next year is also less than half of the forecast for Latin America as whole – 4.2 percent, according to the IMF.
The forecast of a Venezuelan slowdown comes two weeks after PDVSA, the country’s state oil giant, announced that its net income fell by 26 percent last year. PDVSA accounts for nearly 45 percent of the government’s revenues and 78 percent of Venezuela’s total exports, according to the Associated Press.
Venezuelan economist Pedro Palma, who heads up MetroEconomica consultancy in Caracas, has repeatedly warned against a slowdown in the economy.
Brazil and Mexico, Latin America’s largest and second-largest economies, are expected to expand by 4.2 percent and 3.5 percent, respectively.

Ecuador, Latin America’s eight-largest economy, is expected to post the second-worst result in 2008. Its economy will expand by 2.9 percent, the IMF predicts.
Venezuela and Ecuador are both advocating populist economic policies, which the IMF warns against.
“Policy slippages that undermine investor confidence are [a] concern, particularly against the backdrop of pressures for populist fiscal measures in some countries,” the fund says. “In Ecuador, concerns about a possible external debt restructuring saw spreads on external debt widen sharply earlier this year, although they have narrowed more recently.”

On the opposite end is Panama, which will likely expand its GDP by 6.8 percent next year, which is higher than any other economy in Latin America. That follows four years of solid growth, averaging 7.3 percent per year, according to our analysis. And in contrast to Venezuela, Panama will post low inflation next year – only 2.4 percent, the IMF forecasts. That’s the second-lowest rate in Latin America.

Argentina and Peru follow Panama in terms of the highest GDP growth next year. They will each post GDP growth of 5.5 percent. In the case of Argentina, the 2008 rate is a marked slowdown compared to the high growth seen in the five year period 2002-07, when GDP expanded by an average of 8.6 percent per year. Peru’s 2008 growth comes on the heels of four years of growth averaging 6.4 percent.

All in all, 11 countries will see reduced growth rates next year compared to 2007, while seven will see increases and one (El Salvador) will repeat the same growth rate, the IMF predicts.
Among other noticeable changes:
” Bolivia’s GDP is expected to grow by 5.3 percent – its highest level since 1991.
” Haiti’s GDP will grow by 4.0 percent – its best performance since 1996.
” Paraguay’s GDP will grow by 4.5 percent – the best result since 1995.
Measured by trade pacts, the Andean Community will perform best, growing by an average of 4.6 percent next year. The CAFTA countries follow, with an average growth of 4.3 percent, while Mercosur will see the lowest growth rate: 3.9 percent, according to a Latin Business Chronicle analysis of IMF forecasts.

This year, the IMF estimates Latin America will grow by 4.9 percent, which is slower than the 5.5 percent registered last year. That is higher than the growth expected in the United States, the European Union and Asia, but lower than Africa and the Middle East, according to a Latin Business Chronicle analysis of IMF data.
“The external environment is expected to become somewhat less favorable as global growth moderates and oil and metals prices decline from the record levels of 2006,” the IMF says. “A sharper-than-expected slowing in the United States would hit Latin America harder than other regions.”

Countries and regions that have particularly close trade links with the United States (such as Mexico, Central America, and the Caribbean) or are significant exporters of oil and metals (Chile, Ecuador, Peru, and Venezuela) will be most affected, the IMF warns. On the other hand, lower oil prices will benefit countries that are not significant exporters of commodities (including many in Central America and the Caribbean). And the strength of grain prices will help exporters of agricultural products such as Argentina and Brazil, the fund says.

Argentina will see Latin America’s strongest growth this year (7.5 percent), followed by Panama (6.6 percent) and Venezuela (6.2 percent). Ecuador, will see the lowest growth (2.7 percent), followed by Mexico (3.4 percent) and Haiti (3.5 percent). Brazil should grow by 4.4 percent, the IMF estimates.
All in all, 13 countries will see reduced growth rates this year compared to 2006, while only four will see increases and two will repeat the same growth rate, the IMF predicts.

Measured by trade pacts, Mercosur will perform best, growing by an average of 5.4 percent this year. The CAFTA countries follow, with an average growth of 4.9 percent, while the Andean Community will see the lowest growth rate: 4.7 percent, according to the Latin Business Chronicle analysis.
The 2006 growth marked the third consecutive year of strong growth. “2004-06 was the strongest three-year period of growth in Latin America since the late 1970s, although growth still lagged that in other emerging market and developing country regions,” the IMF points out.
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