Latin America

Regional Outlook Deteriorates Sharply

The global outlook is rapidly deteriorating as the financial crisis has spread like wildfire through global capital markets, eroding trillions of dollars in market capitalisation. Although governments are announcing a host of measures to restore confidence, the major advanced economies all seem headed for a recession. Despite a massive US$ 700 billion bailout, the United States is already experiencing a major slump, as downtrodden consumers and difficult financing conditions are weighing heavily on the economy. Against this backdrop, the outgoing Bush administration is considering the execution of a second US$ 150 billion fiscal stimulus plan, endorsed by the Federal Reserve. Similarly, Europe is headed for a notable downturn. While European leaders have acted decisively lowering interest rates and preparing a bank bailout that exceeds US$ 1 trillion, the measures will only serve to mitigate the slump, as the major EU economies are already in or near a recession. While Japan's financial system initially seemed better prepared to withstand the crisis, the government had to announce measures to prop up the country's banking system. In addition, Japan is suffering from a stronger yen, which has reached a 13-year high against the dollar and will thus exacerbate the effects of waning external demand. Against this backdrop, Latin America's growth prospects are also deteriorating and the region is set to grow at the slowest pace in six years in 2009.