LatAm Growth Driven by Domestic Consumption

LatAm GDP is expected to grow by 4.4% this year, largely driven by domestic consumption, according to a report by JPMorgan. This compares to 6.1% in 2010 and the expected EM growth average of 6.1% for 2011. Argentina, Chile and Peru will grow 6%-8%, says JPMorgan. Net exports are a drag on growth but retail sales are growing strongly in Brazil, Chile and Peru, with Colombia and Mexico catching up. While inflation is expected to rise, the bank expects this to be tackled with monetary policy, as fiscal stimulus is being phased out gradually. The report also outlines four main risks the region needs to monitor. This includes China’s growth, as LatAm’s terms of trade are heavily driven by commodity prices. Another risk is contagion from Europe, though the bank says that the strongest links are those with Spain, but that these are small overall. Geopolitics in the EMEA region could push up oil prices and in turn impact on inflation, and FX intervention should also be monitored, as policymakers will feel pressure to contain further appreciation.