Global Economic Outlook

Here's a summary of the latest global economic outlook, with a special focus on Latin America.

As the global economy turns up during late 2003 and early 2004, the pattern of recovery will be highly variable, with the U.S. acting as the engine of growth and Asia receiving the most direct benefit from the increase in activity.

The pace of recovery in Europe will lag that in the U.S. and Asia due to poor corporate profitability, a weak banking system, an overcapacity of commercial real estate, contractionary structural budget positions, and labor market trends that militate against a pickup in household consumption. Near-term prospects are also poor in Latin America, where growth is being undermined by a cadre of structural constraints including a lack of transparency among fiscal and monetary institutions, distortionary trade practices, debt overhangs and contractionary fiscal and monetary policy.

As is the case in Europe, policymakers in Latin America possess an unprecedented mandate to pursue reform, although, as in Europe, entrenched interests are still a powerful roadblock. Success at implementing reform measures is essential to raising the sustainable growth path for the region. Failure in this regard will divert international investment to Eastern Europe and Asia, constrain growth, and exacerbate poverty.

For much of the 1980s and 1990s, aggregate growth in Latin America surpassed global growth as the region attracted inflows of capital. During the 1990s, in particular, state divestment of publicly-owned corporations, such as banks, mining concerns and utilities, as well as the lure of low-cost labor, was a strong draw to multinational corporations seeking high rates of return. Latin America has since fallen on hard times. A series of financial crises beginning with Brazil in 1998 pulled aggregate growth lower, and the region has yet to recover. Current recessions in Brazil, Mexico and Uruguay will ensure that 2003 growth will trail the global average for the sixth consecutive year

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