Growth in Latin America may see a "significant slowdown" if the U.S. and Europe return to recession, even though the region's economies are in a good enough financial shape to avoid a crisis, Morgan Stanley said.
"It may be too early to pronounce a global downturn, but there is little doubt that Latin America can't escape without seeing its growth path suffer," Morgan Stanley said in a report today.
Latin America's economies expanded at the fastest pace in decades last year, growing 6.2 percent, according to Morgan Stanley. Still, the region's quick recovery from the global financial crisis obscured the fact that the downturn was severe, and only overcome thanks to a quick fiscal and monetary stimulus response by regional policy makers, especially in Brazil, and China's demand for the region's commodities, the bank said.
"There is a popular, but I believe mistaken, view that Latin America's largest economy, Brazil, was somehow largely untouched by the global downturn in late 2008," Gray Newman, senior economist for the region, wrote in today's report. "We would caution against reading too much into the 2008 episode."
In Brazil, the region's biggest economy, gross domestic product shrank 15.7 percent on an annualized basis in the fourth quarter of 2008. While the size of the initial decline in Mexico was less severe, the recession in Latin America's second-largest economy was more prolonged, with GDP contracting 6.1 percent in 2009 compared with 0.2 percent for Brazil, the report said.
No Forecast Change
Newman wrote in the report that he isn't changing his forecast for 4.6 percent regional growth both this year and next as estimates for the global economy haven't been revised lower.
The region is in about the same financial shape as it was before entering recession following the collapse of Lehman Brothers Holdings Inc. in 2008, with government deficits and current account balances showing littler deterioration, he wrote.
Still, the region remains vulnerable to demand from China for Argentina's soy, Chile's copper and Brazil's iron-ore among other commodities produced in South America.
"Latin America is not burdened with large debt, worrisome fiscal accounts and fragile financial systems of the sorts seen in much of the developed world," Morgan Stanley said. "We fear that if U.S. and Euroland consumption take a significant hit, we would expect both Chinese import demand and commodity prices to be revised downward."
--Editor: Richard Jarvie, Joshua Goodman
