Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
May 9, 2007
The IMF's World Economic Outlook (WEO) predicts a continued favorable external environment that would result in at least another two years of solid growth in Latin America, with real GDP increasing about 5 percent in 2007 and 4¼ percent in 2008.
Model predicts outcomes in varying risk scenarios encompassing six countries that together account for 90 percent of Latin American output
MODELING RISK
But because Latin America has traditionally been sensitive to global conditions, the IMF's Western Hemisphere Department sought to quantify that sensitivity. It developed a model that encompasses Argentina, Brazil, Chile, Colombia, Mexico, and Peru, which together account for 90 percent of Latin American output—a group it called the "LA6."
Using the WEO as a base, the model predicted outcomes in varying risk scenarios:
• A moderate slowdown in global growth. The model predicts real GDP growth in LA6 countries would fall only a little (see Chart 1).
A disruptive, but low-probability, unwinding of global imbalances that leads to a big decline in world growth. The model predicts a significant fall in Latin American growth (See Chart 2).
A 20 percent decline in the prices of nonfuel commodities. That is not too damaging, but a highly improbable 50 percent fall would hit hard (see Chart 3).
An improbably big tightening of emerging market credit conditions. Latin American growth would slump (see Chart 4)
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