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World Economic and Financial Surveys

Regional Economic Outlook: Western Hemisphere

Taking Advantage of Tailwinds

May 2010

A multispeed global recovery is under way, with some emerging markets in the lead and the major advanced economies growing more slowly. This macroeconomic setting has brought a return to easy global financial conditions and high commodity prices—a situation likely to be sustained for some time but unlikely to be permanent. Against that external backdrop, the recovery in the Latin America and Caribbean region overall is advancing faster than anticipated, but moving at different speeds across countries. The report discusses the varying policy challenges that different countries face as the global recovery proceeds. Chapter 1 analyzes the global setting and the outlook for the United States and Canada in particular, while Chapter 2 focuses on the outlook for Latin America and the Caribbean. Chapter 3 looks in depth at the challenges arising from the return of easy external financial conditions. Together with high commodity prices, such conditions represent favorable “tailwinds” for many countries of the region, but also carry risks for policymakers to address.

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Contents

Preface
 
Executive Summary
 
1. Global, U.S., and Canadian Outlook
  The Global Backdrop—A Recovery with Uneven Speed
  United States—Recovery Is Still Policy Driven
  Canada—Recovery Is Getting Entrenched
  Implications for the Latin American and Caribbean Region
 
2. Outlook for Latin America and the Caribbean
  Growth is Gaining Momentum
  Different Speed of Recovery—Different Policy Challenges
  Financially Integrated Commodity Exporters
     Bouncing Back
     Policy Challenges: Managing Good Times
     Further Strengthening Policy Frameworks
  Tourism Intensive Commodity Importers
     Global Shocks Persisting
     Policy Challenges: Ensuring Fiscal Sustainability amid Low Growth
  Other Commodity Exporters
     Riding the Commodity Cycle
     Policy Challenges: Avoiding the Perils of Procyclicality
     Going Back to Financial Markets?
  Other Commodity Importers
     Traveling the Middle Ground
     Policy Challenges: Replenishing Buffers
  Concluding Remarks
 
3. Challenges Arising from Easy External Financial Conditions
  What Are the Concerns?
     Booming Domestic Demand . . .
     And Currency Appreciation . . .
     May Lead to Vulnerabilities . . .
     And Hinder Competitiveness and Possibly Growth
  Policy Matters
     In the Past . . .
     And in the Future, when an Array of Policy Options Need to Be on the Table
 
Western Hemisphere: Main Economic Indicators
   EnglishPDF | SpanishPDF
 
Latin America and the Caribbean: Main Fiscal Indicators
    EnglishPDF | SpanishPDF
 
References
 
Boxes
1.1 Recent Developments in Financial Regulation Reforms
1.2 Rebalancing Global Demand: What Will Take Up the Baton from the U.S. 5 Consumer?
1.3 U.S. Monetary Policy: How Low for How Long?
2.1 Potential Spillovers from GIPS to Latin America
2.2 LAC Country Analytical Groupings
2.3 Impact of the Earthquake on Haiti and the Role of the IMF
2.4 The Global Crisis and Social Outcomes
2.5 Capital Inflows––An Aspect of “Good Times”
2.6 The Impact of Employment Conditions on Tourism, and Tourism on Output
2.7 Fiscal Performance and Commodity Cycles: Not a Standard Amusement Ride
3.1 When Are Financial Conditions “Easy”?
3.2 Capital Inflows when External Financial Conditions Are Easy
3.3 Real Appreciation and Trend Growth: An Overview on Dutch Disease and Related Concerns