2007 growth

The consensus opinion is for growth to moderate, not collapse. Moody’s Economy.com’s Coutino forecasts 3.7 percent GDP growth in the Latin region for 2007, down from an estimated 5.0 to 5.1 percent in 2006. Rafael de la Fuente, chief Latin American economist at BNP Paribas, pegged his 2007 GDP forecast at 3.5 percent.

“The region continues to be in fairly good shape, thanks to a global economy that is still in a decent growth mode,” says Guillermo Estebanez, currency strategist at Bank of America. “That tends to be good for commodities, and while there has been a correction, overall prices are still high.

What will this mean for the region’s currencies?

“Overall, we think the secular uptrend we’ve seen in the past couple of years is over,” Wardle says.

One reason is that widespread central bank intervention has occurred in Latin America, with countries such as Brazil, Argentina, Columbia, and Peru actively buying U.S. dollars in the open market to prevent appreciation of their home currencies.

“Local governments are wary of letting their] currencies appreciate too much,” Estebanez says. “Their export sectors will get clobbered if the currencies get too strong.”
According to some analysts, this factor alone could result in a fairly moderate currency picture for 2007 for most of the Latin region.