July 15, 2009 --The Gross Domestic Product (GDP) of Latin America and the Caribbean will contract 1.9% this year, raising unemployment to 9% and aggravating poverty levels, according to the Economic Survey of Latin America and the Caribbean 2008-2009 published by ECLAC.
Lower external demand led to a 30% value and 7% volume fall in exports during the first quarter of this year with regard to the same period in 2008. Remittances also dropped (5%-10% between the fourth quarter of 2008 and the first quarter of 2009). Foreign direct investment flows are expected to decrease 40% this year due to the general deterioration of family and business expectations, which negatively affected consumer and investment decisions in the private sector.
A current account deficit equivalent to 2.3% of GDP is expected for 2009, compared to the 0.6% of GDP deficit obtained in 2008. The terms of trade will also fall 10.8% this year, from a 3.0% increase in 2008.
All of this has impacted the labour market. From early 2008 to the first quarter of 2009, over a million people have lost their jobs in urban areas, an inter-annual rise in unemployment of 0.6%. The unemployment rate is expected to increase from 7.4% in 2008 to about 9% this year, leaving an additional three million people without work. This will be accompanied by greater labour informality, which will aggravate poverty levels and make compliance of the Millennium Development Goals more difficult.
This year's Economic Survey includes an analysis of the institutional framework for labour in the region, in order to assess countries' capabilities to address the structural challenges in the labour market and those arising from the current crisis.
Perspectives of recovery
After six consecutive years of economic growth, in the last quarter of 2008, the financial crisis in developed countries spread to the region, impacting particularly on the real economy and especially in the trade area. The crisis struck a region that was much better prepared than it was during prior crises with regard to macroeconomic issues: its economies were growing without interruption, they had lowered most public debt by renegotiating it under better conditions, and they had accumulated international reserves.
This has allowed some countries -although to different extents - react in a way that had been impossible on previous occasions, implementing countercyclical policies and adopting measures to mitigate the effects of the crisis on the most vulnerable population.
Nevertheless, ECLAC draws attention to the significant deterioration of the macro and fiscal margins over recent months due to worsening average fiscal results in the region - the average estimated decrease in public incomes is about 1,8% of GDP. This deterioration may endanger the sustainability and duration of anti-crisis measures implemented in many countries.
With the normalization of financial markets and better perspectives, added to the ongoing recovery of some economies, ECLAC suggests that economic recovery in the region may commence gradually during the second semester of this year. The region would have positive growth rates again in 2010, but with an estimated average of only 3.1%, a very moderate rate compared to previous years, which will not revert the levels of unemployment and greater labour informality expected this year.
ECLAC reiterates the need for international financial bodies to assume an active role in the provision of resources in more favourable conditions, especially to those countries most vulnerable.
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