Latam, Caribbean economies seen sliding
U.N. report also points to signs of recovery

Bloomberg News
August 9, 1999

SANTIAGO -- Economic growth in Latin America and the Caribbean probably shrank in 1999 for the first time in a decade, braked by high interest rates and weak demand for some commodities, a United Nations research institute said.

Regional gross domestic product will probably shrink about 0.4 percent in 1999, compared with regional growth of 2.3 percent in 1998, said the Economic Commission for Latin America and the Caribbean.

``From a regional perspective, 1999 will be a continuation of what happened at the end of 1998,'' said Hubert Escaith, an economist for the commission. ``In the second half, there should be signs of recovery in many of the economies that are suffering from recession.''

Lower growth, which has caused recessions in many of the region's economies, cooled inflation. Prices will probably rise about 10 percent this year, less than 10.3 percent last year, marking the slowest pace of inflation in the last 50 years.

Brazil, Argentina and other regional economies slid into recession, braked by a surge in interest rates for much of last year and a slide in export revenue, the commission.

Regional economies may recover late in the year and grow in the year 2000, after interest rates fell and pressure on some currencies to weaken eased.

In 1999, eight of 19 regional economies tracked by the group will probably shrink. Venezuela will lead the decline, with its economy contracting about 6 percent. Ecuador, Honduras, Argentina, Colombia, Paraguay and Uruguay also are shrinking. Brazil, the region's biggest economy, will have contracted more than 1 percent, the group said.

Mexico and many countries in Central America and the Caribbean bucked the trend as trade with the U.S. economy helped fuel economic growth. Peru also grew, signaling a recovery after being pummeled last year by the El Niņo weather phenomenon. Chile will have grown less than 1 percent.

The region's current account deficit, a broad measure of trade, probably will narrow in 1999 to about $75 billion, or 3.5 percent of gross domestic product, from $89 billion last year, or 4.6 percent of GDP. The shortfall narrowed after economies slowed and currencies weakened, making imports more expensive.

Direct foreign investment in factories and equipment will probably be about $60 billion, close to levels in 1998, the group said.

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