Lat-Am Watch: Grasshoppers, not ants
Inflation and low remittances spell wintry days ahead.
If you found yourself in the unenviable situation of having to spend time in one of those random sprawling shopping malls in Guayaquil, Caracas or Mexico City during the weekend, you'd be forgiven for thinking that in Latin America we are on another planet.
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For, while in the US and Europe consumers clutch nervously at their purse strings, in constant fear that their economy will run aground on the looming sandbanks of a whopping recession, the average Latino shopper acts as if life's a beach.
Like swarming ants, shoppers cover every square inch of those centros commerciales, stocking up on things no-one needs and gorging on food unfit to eat. And not because it's cheap, but because we think we can afford it.
But can we? Most indicators suggest that the region is better prepared than usual to face the approaching economic downturn. According to CEPAL, the UN's economic research institute for Latin America and the Caribbean, the region should expect to see a calming 4,7 percent economic growth in 2008. Less than in previous years, but nothing to alarm the average mall customer.
Next year growth is expected to slow to 4 percent. Not great, but still no real cause for alarm - a view that is broadly reflected. According to Spanish Economy Minister Pedro Solbes, the global "financial shocks" are only having a "modest impact" on Latin America, he was quoted as saying by InfoLatam.
That, he told a gathering of Spanish and local businessmen this weekend, was thanks to the "credibility" of regional economic policy. It was proof, Solbes insisted, that we had finally made a "qualitative leap" in our integration into the global economy.
However, there are serious signs that our newfound footing is a not as rock hard as the sight of the cheerfully consuming masses would suggest. But to actually see the cracks in the floor, you have to look down.
The number of poor people in Latin America will increase by 15 million this year, according to CEPAL. Inflation is to blame, gnawing away at people's purchasing power. The less you have, the more it affects you.
Over 2008 the increase in prices is expected to reach 8,9 percent, almost twice the growth rate. Even worse, food prices are going up by 15,7 percent region-wide. The more of your budget spent on feeding your family, the harder you get hit.
Some countries are worse off than others. In Bolivia inflation is up to 17 percent and in Nicaragua it's even 23. President Hugo Chávez's Bolivarian budget has helped fuel the rise in prices in Venezuela to a dizzyingly high 32 percent. As for Argentina's official 9 percent – that's starting to sound like a broken record.
It's not only inflation that is eating away at the income of poorer households. Although the economic indisposition of the US and EU is not being mirrored here in the region, the secondary effects are already becoming clear. Foremost among them is a sudden decline in remittances.
The influx of cash sent home by Latino workers in Europe and the US is one of the mainstays of the economy in many Latin countries. Besides, the Euros or dollars wired home by a relative are often what keeps a family from slipping into destitution.
Spain and the US, the two countries that absorb the greatest number of immigrant workers from Latin America, are also two of the hardest hit by the credit crunch. As a result of lay-offs and consumer wariness, immigrants are forced to cut back on the money they send home.
According to the Spanish Central Bank, between January and March, remittances dropped by 2,6 percent compared to the same period in 2007. The first dip in a decade according the researchers at Remesas.org.
In Ecuador remittances have also been in decline this year, decreasing by as much as 7,7 percent in the second quarter of this year. Only 711 million dollars found their way to the small Andean nation, compared to 771 in the year before and compared to 759,6 million dollars in the months of January through March.
For Ecuador, where almost every family has someone working in the US, Spain or Italy and where remittances add up to more than 15 times the amount received in foreign aid, those figures are very bleak news.
Mexico, the world's third largest recipient of remittances after China and India, also saw a significant drop this year. In July the amount of money received was almost 7 percent less than in the same month in 2007, Mexico's central bank announced last week.
The main reason, according to Jesús Cervantes of the bank's research division, was the slump in the US construction business where around 20 percent of Mexican immigrants work. The recent slide of the dollar has also put pressure on the value of money sent to those back home.
Therefore, despite the lukewarm promise of growth for the next twelve months, the overall outlook is not good. Most analysts maintain that Europe and the US are still not in the clear, despite Sunday's massive bailout.
While their economies struggle, more and more Latino immigrants will find it harder to send cash home. Meanwhile those who stayed behind face inflation rates far greater than rising incomes, especially for the millions who work in Latin America's massive informal economy.
You don't need to be a mall-o-phobic like me to figure out that those who buoyantly swipe their way into oblivion have less in common with laborious ants than they do with the fabled idle grasshopper who got trapped by winter with no food to spare.
If you found yourself in the unenviable situation of having to spend time in one of those random sprawling shopping malls in Guayaquil, Caracas or Mexico City during the weekend, you'd be forgiven for thinking that in Latin America we are on another planet.
.jpg)
For, while in the US and Europe consumers clutch nervously at their purse strings, in constant fear that their economy will run aground on the looming sandbanks of a whopping recession, the average Latino shopper acts as if life's a beach.
Like swarming ants, shoppers cover every square inch of those centros commerciales, stocking up on things no-one needs and gorging on food unfit to eat. And not because it's cheap, but because we think we can afford it.
But can we? Most indicators suggest that the region is better prepared than usual to face the approaching economic downturn. According to CEPAL, the UN's economic research institute for Latin America and the Caribbean, the region should expect to see a calming 4,7 percent economic growth in 2008. Less than in previous years, but nothing to alarm the average mall customer.
Next year growth is expected to slow to 4 percent. Not great, but still no real cause for alarm - a view that is broadly reflected. According to Spanish Economy Minister Pedro Solbes, the global "financial shocks" are only having a "modest impact" on Latin America, he was quoted as saying by InfoLatam.
That, he told a gathering of Spanish and local businessmen this weekend, was thanks to the "credibility" of regional economic policy. It was proof, Solbes insisted, that we had finally made a "qualitative leap" in our integration into the global economy.
However, there are serious signs that our newfound footing is a not as rock hard as the sight of the cheerfully consuming masses would suggest. But to actually see the cracks in the floor, you have to look down.
The number of poor people in Latin America will increase by 15 million this year, according to CEPAL. Inflation is to blame, gnawing away at people's purchasing power. The less you have, the more it affects you.
Over 2008 the increase in prices is expected to reach 8,9 percent, almost twice the growth rate. Even worse, food prices are going up by 15,7 percent region-wide. The more of your budget spent on feeding your family, the harder you get hit.
Some countries are worse off than others. In Bolivia inflation is up to 17 percent and in Nicaragua it's even 23. President Hugo Chávez's Bolivarian budget has helped fuel the rise in prices in Venezuela to a dizzyingly high 32 percent. As for Argentina's official 9 percent – that's starting to sound like a broken record.
It's not only inflation that is eating away at the income of poorer households. Although the economic indisposition of the US and EU is not being mirrored here in the region, the secondary effects are already becoming clear. Foremost among them is a sudden decline in remittances.
The influx of cash sent home by Latino workers in Europe and the US is one of the mainstays of the economy in many Latin countries. Besides, the Euros or dollars wired home by a relative are often what keeps a family from slipping into destitution.
Spain and the US, the two countries that absorb the greatest number of immigrant workers from Latin America, are also two of the hardest hit by the credit crunch. As a result of lay-offs and consumer wariness, immigrants are forced to cut back on the money they send home.
According to the Spanish Central Bank, between January and March, remittances dropped by 2,6 percent compared to the same period in 2007. The first dip in a decade according the researchers at Remesas.org.
In Ecuador remittances have also been in decline this year, decreasing by as much as 7,7 percent in the second quarter of this year. Only 711 million dollars found their way to the small Andean nation, compared to 771 in the year before and compared to 759,6 million dollars in the months of January through March.
For Ecuador, where almost every family has someone working in the US, Spain or Italy and where remittances add up to more than 15 times the amount received in foreign aid, those figures are very bleak news.
Mexico, the world's third largest recipient of remittances after China and India, also saw a significant drop this year. In July the amount of money received was almost 7 percent less than in the same month in 2007, Mexico's central bank announced last week.
The main reason, according to Jesús Cervantes of the bank's research division, was the slump in the US construction business where around 20 percent of Mexican immigrants work. The recent slide of the dollar has also put pressure on the value of money sent to those back home.
Therefore, despite the lukewarm promise of growth for the next twelve months, the overall outlook is not good. Most analysts maintain that Europe and the US are still not in the clear, despite Sunday's massive bailout.
While their economies struggle, more and more Latino immigrants will find it harder to send cash home. Meanwhile those who stayed behind face inflation rates far greater than rising incomes, especially for the millions who work in Latin America's massive informal economy.
You don't need to be a mall-o-phobic like me to figure out that those who buoyantly swipe their way into oblivion have less in common with laborious ants than they do with the fabled idle grasshopper who got trapped by winter with no food to spare.
posted by PIT @ 2:12 AM
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