S&P: Latin America Faces Headwinds from U.S. Financial Distress

Latin American economies face strong headwinds in 2009 from financial distress in the U.S. and spillover weakness in Europe, according to Standard & Poor’s.

S&P Credit Services is estimating a still-healthy growth rate of 4.6 percent for Latin America this year, down from 5.7 percent in 2007, largely on the strength of high commodity prices.

For 2009, though, S&P expects real GDP growth in the region to slow further to 3.9 percent as difficult economic conditions in the U.S. and Europe weigh on the global economy.

A key to Latin America’s outlook is whether global demand holds up for commodities, S&P said, especially from China and India.

How growth in China and India hold up in the face of global stress will play a key role in terms of Latin America’s economic performance. We project that real GDP growth in China will be a still-firm 10 percent and 9.5 percent in 2008 and 2009, respectively, and India’s growth is projected at 7.3 percent to 8 percent. As a result, we expect commodity prices to remain supportive, albeit off recent highs.

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Latin American countries also face slowing growth because of central bank credit tightening, S&P said.

Booming domestic demand in the region has pushed inflation up sharply to an estimated 10 percent annual rate this year from 5.5 percent in 2007. In response, central banks in the region have raised interest rates, with Brazil’s central bank hiking rates by 2.5 percentage points since April, for example.

For details, see “A Stronger Latin America is Holding up so far, but Sustaining Growth will be Tougher in 2009”