Headwinds from Europe will reach Latin America. The rapidly growing developing nations will suffer accordingly
S&P reports that
Amid an uncertain and challenging global economy, Standard & Poor’s Ratings Services expects growth in Latin America to decelerate to 3.5% in 2012 and 3.6% in 2013 from about 4% in 2011. However, downside risks to this forecast are significant and depend on how the evolving crisis in Europe plays out locally and globally.
The weaker projected growth in Latin America stems from both slower domestic and external demand, as external conditions affect the region via a combination of trade and financial market channels. We expect Latin American governments to deploy some countercyclical policies—particularly monetary policy and, to a lesser extent, fiscal policy—to soften any shocks from abroad. In addition, currency depreciation under floating exchange rate regimes provides some buffer for many of the region’s economies. However, we expect that tighter external financing conditions will slow capital inflows across the region and affect conditions in local capital markets.
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