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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: William H Huebl who wrote (41242)	6/30/1999 9:22:00 PM
From: John Pitera	Read Replies (1) \| Respond to of 94695

New Data Indicate Longer Recession in Latin America June 30, 1999 By CLIFFORD KRAUSS UENOS AIRES, Argentina -- Despite brighter-than-expected economic performances in Brazil and Mexico, a spate of new economic data around Latin America in recent days suggests that the recession gripping the region will be deeper and more prolonged than most economists had expected. Plunging regional trade and retail sales, persistently low commodity prices and growing jitters over the financial health of several Latin American governments -- all complicated by fears that U.S. interest rates will rise -- have led forecasters to lower their projections of growth and recovery well into the next year. As a result, unemployment is rising in most of the region's countries, and consumers are spending less. Over the last month the currencies of Brazil, Chile, Ecuador and Venezuela have come under pressure. Colombia devalued the peso on Monday by about 10 percent. Argentina, Colombia, Ecuador and Venezuela have reported lower-than-expected economic growth in recent days. Repeated cuts in interest rates have not turned around the Chilean economy, as many economists had expected. The Argentine government's cost of borrowing has sharply increased amid investors' concern over the expanding budget deficit. In Peru, there are growing indications that unpaid debts are jeopardizing the health of several major banks. "We thought the effects of the Asian crisis, the Russian virus and even the Brazilian crisis would have been milder and shorter," said Jose de Gregorio, an economist at the University of Chile. "With the exceptions of Mexico and Brazil, all the countries are doing worse than expected." In a report released on Monday, Bear, Stearns lowered its previous 1999 growth estimates for all countries in the region except Mexico and Brazil. The gross domestic product for the region this year, adjusted for inflation, was projected to shrink by one-tenth of a percentage point. Many economists had projected expansion of 2 percent or 3 percent. Bear, Stearns projected 3.5 percent growth for the region in 2000, which is considered a relatively modest rebound in light of the sharp contraction of trade and the flight of foreign investment this year as well as in 1998. "Latin America is under pressure as it prepares for a Fed rate increase in the face of falling prices in much of the world," the report said. "Exchange rate weakness is likely in 1999 for most countries, with sizable devaluations possible in Colombia and Venezuela." The report predicted that despite a growing demand from the United States for South American goods, exports would fall 5 percent from already weak 1998 levels. Mexico has been an exception to the trends, with the government last week forecasting that its economy would grow by 3 percent this year, largely because of expanding trade with the United States. Mexico's ties to the strong American economy have also helped strengthen confidence in the peso -- which settled in New York Tuesday at 9.425 to the dollar, up from 9.45 -- and in lower Mexican borrowing rates. Despite Mexico's growth, Bear Stearns estimated that the purchasing power of the region as a whole would contract by $173 billion this year. Brazil is the anchor of the South American economy, and its performance in recent months has also been better than expected, considering the financial crisis that erupted with devaluation in January. Interest rates have come down without pumping up inflation, while temporary cuts in consumption taxes have helped increase production and sales in the important auto industry. In February, economists predicted a contraction in Brazil of up to 4 percent this year; now the Brazilian output is expected to contract by 1 percent. Still, the economists remain cautious. The deterioration elsewhere has become noteworthy in recent weeks in the so-called Southern Cone -- where the Argentine, Chilean and Uruguayan economies are suffering their worst downturns in several years. Chile announced this week that May unemployment had risen to 9.8 percent from 8 percent in April, well above what government and private economists had predicted. The Argentine government recently recalculated the decline in first-quarter output to 3 percent from 2.8 percent, and this week officials conceded that unemployment -- now 14.2 percent, or two points above the already steep level of last October -- could exceed 15 percent in coming months. The human costs of this deepening recession in Argentina were suggested in the dismal quarterly sales figures reported last week by the nation's supermarkets, with declines of 15 percent or more in such staples as powdered milk, beef and sausage compared with a year earlier. Car sales in Argentina have fallen 31 percent in the first five months of the year from the corresponding period of 1998.