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Economic and social overview of and

Meeting of Regional Coordination Mechanism for Latin America and the Caribbean - , 24 January 2013

Antonio Prado, Secretary Contents

• The in the of the global crisis: recent trends in economic and social development

• Long-run challenges to achieve structural change for equality

Crises have traditionally cut deep into the social fabric in the region

LATIN AMERICA AND THE CARIBBEAN: COMPARISON OF PER CAPITA GDP AND POVERTY RATES, 1980-2011

Poverty GDP per capita

Source: ECLAC, on the basis of specia tabulations of household surveys There has been a clear reduction in inequality since 2002, and this continued in 2011

LATIN AMERICA (18 COUNTRIES): , 2002-2011 AND 2010-2011

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of household surveys conducted in the respective countries. a Data for urban areas in , and . Data for 2002 are from 2002 except for , , , and (2001), Argentina (2004) and (2000). Data for 2011 are from 2011 except for Rica, Nicaragua and the Plurinational State of (2009), El Salvador, and (2010) and (2006). b Data for urban areas in Argentina. Data for 2010 refer to figures for 2009 in Brazil and Chile. This crisis current is different: a recession caused by a financial crisis arising from private over indebtedness

• Recessions of this sort are longer and impact heavily on output and employment. • Recoveries are precarious and highly vulnerable to economic or financial volatility. • Necessary private debt reduction takes place in periods of slack economic activity and asset value slippage. • Deleveraging and recomposition of private savings make monetary stimulus measures less effective. • Emerging economies and -South have been key in global growth Since the beginning of this crisis, Latin America and the Caribbean showed a certain resilience

Downside Upside . Trade contraction, especially . GDP growth of 3.1% (above towards and the global average of 2.2%) in . Adverse climate factors (soy) 2012 . Insufficient investment . Fall in unemployment (to limited the growth capacity 6.4%) and an increase in (supply) average wages . Accommodative monetary . Some exchange rate volatility policy and continued reserve (Brazil and Mexico) accumulation . Lower financial inflows to the . Increased investment and region consumption . Fiscal prudence

External context 2012

• Financial, fiscal and competiveness imbalances in the Euro were associated with: – A recession in the majority of the countries of the EZ, with economic growth of -0.5% – A slow process of joint problem solving, although with the decision of the ECB to intervene under certain conditions – Financial instability, though with improvements in the risk premiums in the EZ during the second half • Slowdown in China, from 9.2% in 2011 to 7.7% in 2012 • Modest growth in the USA, between 1.8% and 2.1% • Absence of shocks in the oil market

Global economic growth decelerated

GLOBAL GDP GROWTH BY REGION, 2010 – 2013 (in percentage)

12

10.3 10 9.2

7.9 8 7.7 7.7

6.0 6 5.7 5.1 4.7 4.5 4.3 4.0 3.8 4 3.1 2.7 2.4 2.4 2.1 2.2 2.1 1.8 1.7 2 1.5 1.5

0.6 0.3 0

-0.5 -0.7

-2 2010 2011 2012 a/ 2013 b/

World Euro area Latin America and the Caribbean Developing economies China

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on UN/DESA. a/ Estimate. b/ Projection. Regional GDP grew by 3.1% in 2012, above the global average (2.2%)

LATIN AMERICA AND THE CARIBBEAN: CONTRIBUTION TO REGIONAL GDP GROWTH BY COUNTRY, 2004 – 2012a

7%

6% Brazil

5% Argentina 4%

3% The Caribbean

2% Mexico 1% 0%

-1% Rest of

-2% Latin America and the

-3%

Caribbean

2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. a Figures for 2012 correspond to estimations. The majority of Latin America countries posted growth above 3.1% in 2012

LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH RATES, 2012a (Percentages) 10.5 Peru 6.2 Chile 5.5 (Bol. Rep. of) 5.3 5.0 Bolivia (Plur. St. of) 5.0 Ecuador 4.8 4.5 Central America (9 countries) 4.2 Nicaragua 4.0 Uruguay 3.8 Mexico 3.8 Dominican 3.8 Honduras 3.5 Guatemala 3.3 Latin America 3.1 Latin America and the Caribbean 3.1 3.0 South America (10 countries) 2.7 2.5 Argentina 2.2 El Salvador 1.2 Brazil 1.2 The Caribbean 1.1 Paraguay -1.8 -4 -2 0 2 4 6 8 10 12

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. a Estimate Growth in the Caribbean increased from 0.4% in 2011 to 1.1% in 2012

THE CARIBBEAN: GDP GROWTH RATES, 2012a (Percentages)

Belize 4.2

Guyana 3.8

Suriname 3.6

Latin America and the Caribbean 3.1

Bahamas 2.5

Dominica 1.6

Saint Vincent and the Grenadines 1.5

The Caribbean 1.1

Trinidad and Tobago 1.0

Antigua and Barbuda 0.9

Saint Lucia 0.9

Barbados 0.2 0.2

Jamaica -0.2

Saint Kitts and Nevis -0.8

-2 -1 0 1 2 3 4 5

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. a Estimate Consumption continued to be the most important driver of growth

LATIN AMERICA: CONTRIBUTION TO GDP GROWTH, 2008 – 2012a (As a percentage of GDP)

10%

8%

6%

4%

2%

0%

-2%

-4%

2010 2008 2009 2011 2012

Private Consumption General Government Consumption Investment Net Exports GDP

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. a Figures for 2012 correspond to estimations. The region’s investment coefficient has continued to grow persistently

LATIN AMERICA: GROSS FIXED CAPITAL FORMATION AS A PERCENTAGE OF GDP, 1980 – 2012a (2005 constant ) 30%

25%

20%

15%

10%

5%

0%

2011

1981 1986 2012 1980 1982 1983 1984 1985 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. a Figures for 2012 correspond to estimations. FDI inflows remained above 120 billion dollars

LATIN AMERICA AND THE CARIBBEAN: FOREIGN DIRECT INVESTMENT INFLOWS, 2008 – 2012a (In millions of dollars)

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0 2008 2009 2010 2011 2012

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. a Figures for 2012 correspond to estimations. slowed, with some exceptions

LATIN AMERICA AND THE CARIBBEAN: CONSUMER PRICE INDEX, Jan 2008 – Oct 2012 (Rate of change over twelve months)

16% 14% 12% 10% 8% 6% 4% 2%

0%

July July July July

May May May

June June June

April April April

March March March

August August August

January January January January

October October October

February February February

December December December

November November November

September September September 2009 2010 2011 2012 CPI Food Core International reserves accumulation continued throughout the region, though at a slower rate than in 2011

GROSS INTERNATIONAL RESERVES, 2001 - 2012 (Millions of dollars and as a percentage of GDP)

60% 13,772 50% 9,326 40%

62,212 30% 13,120 751 1,856 377,753 1,400 1,990 4,838 20% 38,943 5,366 6,804 2,524 165,590 45,274 25,864 36,402 10% 3,347

0%

October 2011 October 2012

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. Some decline in commodity prices, but with increased volatility

INTERNATIONAL PRICE INDICES OF COMMODITIES AND MANUFACTURES, 2008-2012 (2005=100, three month moving average)

360 340 320 300 280 260 240 220 200 180 160 140 120 100

80

11

11 11

11

08 09 10 12

08 08 08 09 09 09 10 10 10 12 12 12

-

- -

-

- - - -

------

Jul

Jul Jul Jul Jul

Oct

Apr

Jan

Apr Oct Apr Oct Apr Oct Apr Oct

Jan Jan Jan Jan Food Tropical beverages Oils and oilseeds Forestry and agricultural raw materials Minerals and metals Energy Manufactured goods

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on figures from the Conference on Trade and Development (UNCTAD) and the Bureau for Economic Analysis (CPB). Exchange rate volatility increased in Brazil and Mexico, with a greater diversity in exchange-rate trajectories

NOMINAL EXCHANGE RATE, Jan 2008 – Nov 2012 (National currency per , index 01/01/2008=100)

150

140

130

120

110

100

90

80

01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01 01

------

11 01 01 03 05 07 09 01 03 05 07 09 11 01 03 05 07 09 11 03 05 07 09 11 01 03 05 07 09 11

------

2008 2011 2008 2008 2008 2008 2008 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010 2010 2011 2011 2011 2011 2011 2012 2012 2012 2012 2012 2012

Brazil Chile Colombia Mexico Peru

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. Although the trade channel was most affected, net financial flows to the region also declined

LATIN AMERICA AND THE CARIBBEAN: GROSS CAPITAL FLOWS, 2008 – 2012a (In millions of dollars) 250,000

200,000

150,000

100,000

50,000

0

-50,000

-100,000

-150,000

-200,000 2008 2009 2010 2011 2012 Portfolio investment outflows Portfolio investment inflows Other investment outflows Other investment inflows Net financial flows (excl. net FDI and errors)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. a Figures for 2012 correspond to estimations. In contrast with Latin America, the public debt situation in the Caribbean is a source of vulnerability

LATIN AMERICA AND THE CARIBBEAN: PUBLIC DEBT AS A PERCENTAGE OF GDP, 2011-2012a

Saint Kitts and Nevis Granada Saint Vincent and the Grenadines Bahamas Brazil El Salvador Uruguay Colombia Argentina Panama Costa Rica Mexico Bolivia Nicaragua Latin America (19) Honduras Venezuela Haiti Guatemala Ecuador Chile Peru Paraguay 0 20 40 60 80 100 120 140 160

2012 2011

Source: Economic Commission for Latin America and the Caribbean, based on official figures. a Figures for 2012 correspond to: September for Latin America, Bahamas and Belize; August for Suriname; June for Jamaica and Trinidad and Tobago; and March for Barbados. The rise in consumption reflected improved labour market conditions: unemployment fell (to 6.4%) and wages increased

LATIN AMERICA AND THE CARIBBEAN: ECONOMIC GROWTH, INCREASE IN REAL AVERAGE WAGE AND VARIATION IN THE UNEMPLOYMENT RATE

12.00 120.00

10.00 115.00

8.00 110.00

6.00 105.00

4.00 100.00

2.00 95.00 Rates (percentages)Rates

.00 90.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 e/ Average Real Salary (Index 2000 100) = -2.00 85.00

-4.00 80.00

Economic Growth Unemployment Rate (left axis) Real Average Wages (right axis)

Source: Economic Commission for Latin America and the Caribbean, (ECLAC), based on official figures. e/ Estimate. Evolution of unemployment by sub-region

URBAN UNEMPLOYMENT RATE, 2008 - 2012 (Percentage) 10

9

REST OF SOUTH AMERICA

8

BRAZIL 7

CARIBBEAN 6

CENTRAL AMERICA

5 MEXICO

4 2008 2009 2010 2011 2012 e/ Brazil Rest of South America (7 countries) Mexico Central America (3 countries) The Caribbean (3 countries)

Source: Economic Commission for Latin America and the Caribbean, (ECLAC), based on official figures. e/ Estimate. For the Caribbean: First half of the year. Salaried employment grew more than own-account work, although at a lower rate than in 2011

LATIN AMERICA: ECONOMIC GROWTH AND EMPLOYMENT DYNAMICS, 2000 - 2012 (Percentage)

6

5

4

3

2

1

0

-1

-2

Salaried Employment Own Account Workers GDP

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. a/ January-September Formal employment increased, but in various countries at a slower pace

LATIN AMERICA: YEAR-ON-YEAR CHANGE OF FORMAL, SALARIED EMPLOYMENT (Percentage)

9

7

5

3

1

-1

-3

-5 Argentina Brazil Chile Costa Rica Mexico Nicaragua Panama Peru Uruguay

2009 2010 2011 2012 a/

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. a/ January-September, except Argentina and Panama, whose data correspond to the period January-June; and Uruguay, January-August. Both poverty and indigence posted a fresh decline in 2011

LATIN AMERICA: POVERTY AND INDIGENCE, 1980-2012 a (Percentages and millions of people)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of household surveys conducted in the respective countries. a Estimate for 18 countries of the region plus Haiti. The figures above the bars refer to the percentage of total poor (indigents and non-indigent poor). The figures for 2012 are projections. Wages were the main driver of higher income in poor groups...

LATIN AMERICA (7 COUNTRIES): ANNUAL VARIATION IN TOTAL INCOME PER CAPITA AND INCOME SOURCE IN POOR HOUSEHOLDS,a 2010-2011 b (Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of household surveys conducted in the respective countries. a The percentage of the population analysed is the same for both periods and corresponds to the poverty rate for 2008 or nearest previous year. b Corresponds to the period 2009-2011 in Brazil and Chile. c Urban areas. … but gaps between women and men have been widening, leading to greater feminization of poverty

LATIN AMERICA (18 COUNTRIES): FEMININITY INDEX OF POVERTY, 2011

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of household surveys conducted in the respective countries. a Urban areas. Social public spending has kept rising as precentage of GDP

AMÉRICA LATINA Y EL CARIBE (21 PAÍSES): EVOLUTION OF SOCIAL SPENDING IN DIFFERENT ECTORS, 1990-1991 A 2008-2009. 6.6 a/ (in percentage of GDP) 20.0 17.9 18.0

16.0

14.0

12.0 11.3 3.5 a/

10.0 1.8 a/ 7.9 8.0 1.0 a/ 6.0 4.9 4.4 3.7 0.4 a/ 4.0 3.1 2.7 1.6 2.0 1.2

0.0 GastoTotal socialsocial total GastoSpending en educación in GastoSpending en salud in GastoSpending en seguridad in social y GastoSpending en vivienda in y spending education health asistenciaprotection social housingotros and other 1990-1991 1994-1995 1998-1999

Fuente: Comisión Económica para América Latina y el Caribe (CEPAL), sobre la base de cifras oficiales. Balance, perspectives and challenges In 2013, external demand will not be a source of dynamism • – Solvency problems persist both in terms of public debt and in the financial system, as well as insufficient external adjustment – Low growth and a possible recession in 2013 – Institutional changes (fiscal union and a unified banking supervisor) will take time • United States: – Liquidity will continue to expand – Labour, housing and banking solvency indicators suggest possibilities of increased growth in 2013 – There remains a risk of the fiscal cliff • China – Indicators suggest growth similar to or greater than that of 2012: 7.9% in 2013 compared to 7.7% in 2012

But a slight uptick in growth is predicted for the region (3.8%) in 2013

LATIN AMERICA AND THE CARIBBEAN: CONTRIBUTION TO REGIONAL GDP GROWTH BY COUNTRY , 2004 - 2013

7%

6% Brazil

5% Argentina 4%

3% The Caribbean

2% Mexico 1%

0% Central America -1%

-2% Rest of South America

-3%

Latin America and the

Caribbean

2004 2005 2006 2007 2008 2009 2010 2011

2012/a 2013/b

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. a/ Estimate b/ Projection With a recovery in some countries and a small slowdown in others

LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH RATES, 2013a (Percentages) Paraguay 8.5 Panama 7.5 Peru 6.0 Haiti 6.0 Bolivia (Plur. St. of) 5.0 Chile 4.8 Nicaragua 4.5 Colombia 4.5 Latin America 4.0 Uruguay 4.0 Brazil 4.0 South America (10 countries) 4.0 Central America (9 countries) 3.9 Latin America and the Caribbean 3.8 Mexico 3.5 Honduras 3.5 Ecuador 3.5 Cuba 3.5 Costa Rica 3.5 Guatemala 3.5 Argentina 3.5 Dominican Republic 3.0 El Salvador 2.0 The Caribbean 2.0 Venezuela (Bol. Rep. of) 2.0 00 01 02 03 04 05 06 07 08 09

Source: Economic Commission for Latin America and the Caribbean (ECLAC). a Projection The Caribbean will also grow, at 2.0%, but vulnerabilities remain

THE CARIBBEAN: GDP GROWTH RATES, 2013a (Percentage)

Guyana 4.9 Suriname 4.7 Latin America and the Caribbean 3.8 Bahamas 3.0 Trinidad and Tobago 2.5 Antigua and Barbuda 2.4 Belize 2.3 The Caribbean 2.0 Saint Lucia 1.9 Saint Kitts and Nevis 1.8 Dominica 1.7 Saint Vincent and the Grenadines 1.5 Granada 1.2 Barbados 1.0 Jamaica 0.1

.0 1.0 2.0 3.0 4.0 5.0 6.0

Source: Economic Commission for Latin America and the Caribbean (ECLAC) a Projection In the short term

The role of domestic demand (national and intra- regional) should be strengthened and expanded, in order to: • Grow to achieve equality (through employment and wages) • Enhance investment dynamics • Avoid internal macroeconomic disequilibria (inflation or financial bubbles) • And external disequilibria (increasing current account deficits) • In the Caribbean: ensure fiscal consolidation, but with • Strengthen regional demand through intra-regional trade Longer-term challenges: structural gaps to be closed

Inequality Investment Productivity Taxation International Environ- For the first time in Investment, at Closing the external Regressive linkages mental sustainabi- recent history 23% of GDP, is gap (with the tax systems; Risk of “lock-in” of there have been insufficient for technological weak non- the export structure, lity advances in development frontier) and the contributory with low value added Move towards combating internal gap pillar and little investment sustainable inequality (between sectors in technology production and and actors) consumption patterns

• In order to move towards productive convergence, policymakers must look beyond the price boom: economic policies based on a relevant, long-term, sustainable vision at the macroeconomic, productive and territorial levels. • To take advantage of the opportunities provided by the international context, exports must have a higher value added and knowledge content, with the focus on diversification of production, integration of sustainable production processes, re-evaluation of global and regional partnerships and strengthening open regionalism. • Consensus on priorities and respective financing: a fiscal covenant with a redistributive impact – with access to innovation, job security and internalization of externalities. • New equation: State-market-society. Risk of lock-in based on static comparative advantages

AMÉRICA LATINA Y EL CARIBE: ESTRUCTURA DE LAS EXPORTACIONES POR NIVEL DE INTENSIDAD TECNOLÓGICA, 1981-2010 a (En porcentajes del total) Productive structure and employment: concentrated in low-productivity sectors

LATIN AMERICA (18 COUNTRIES): STRUCTURAL HETEROGENEITY INDICATORS, AROUND 2009 (Percentages)

Source: ECLAC, on the basis of R. Infante, “América Latina en el ‘umbral del desarrollo’. Un ejercicio de convergencia productiva”, Working Paper, No. 14, Santiago, Chile, June 2011, unpublished. Access to financing for development for middle-income countries

• The focus on does not reflect the broad and multi-faceted of the development process • ECLAC proposes an alternative approach based on structural gaps must be adopted • This implies: • Focusing cooperation and financing towards development, not only poverty reduction • Re-thinking the role and integration of middle income countries in the system of regional cooperation • New political dialogue at the global and regional levels

Strengthening the regional integration agenda

• Intraregional trade, development of value chains, investment and infrastructure • Harnessing strategic opportunities with , especially China • Enhancing the regional financial architecture • Closer regional cooperation to tackle global challenges (global governance, financing for development, Rio+20, development agenda beyond 2015).

ECLAC’s proposal: structural change for equality

. Close economic and social gaps, both internal and external • Progress towards more knowledge-intensive activities • Reduction of production and territorial heterogeneity . Spread throughout the economic and social structure: • Production and technology capabilities • Ample job opportunities and quality employment • Social protection with universal access • Environmental sustainability in the context of the technology revolution

. Strengthen the role of the State as a guarantor of rights and driver of policies for sustainable economic and social development