Latin America: Riding the Global Financial Waves


By Gustavo Adler and Camilo E. Tovar

(Version in Español)

Latin America has a long history of accidents that have occurred while navigating turbulent financial international waters. With risks looming over the world economy, should the region worry about new global financial waves?

Global financial markets have seen frequent bouts of severe stress since 2008, although this isn’t really anything new for the region. Global financial shocks have occurred on average every 2½ years since 1990, with significant effects on Latin America.

But how costly are these shocks in terms of domestic output, and is Latin America better placed to cope with them this time?

In Chapter 3 of the IMF’s latest Regional Economic Outlook: Western Hemisphere, we analyze whether changes in underlying fundamentals have made the region more or less vulnerable over time. The analysis, which complements our work on the effects of terms-of-trade shocks, looks at what country features and policies make a difference. We focus here solely on the impact of the financial shocks by isolating the effect from commodity prices and global demand shocks.

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Latin America: Vulnerabilities Under Construction?


By Luis Cubeddu, Camilo E. Tovar, and Evridiki Tsounta

(Version in Español)

Housing construction projects are sprouting up across much of Latin America and mortgage credit is also growing very fast. Does this sound familiar? It should!

Easy external financing conditions and high commodity prices have led to important improvements in living standards and credit deepening in many countries of the region over the past decade. The credit expansion has been particularly impressive in the mortgage sector, where legal reforms and government subsidies have also played a role.

Although mortgage credit in Latin American countries is relatively low by international standards —at just 7 percent of GDP versus over 20 percent in emerging Asia and over 65 percent in the United States—it has grown at an impressive annual average real rate of 14 percent since 2003, with Brazil leading the pack. Home prices have also risen sharply over this period, particularly in countries where mortgage credit has expanded the fastest (for more details see Chapter 5 in our latest Western Hemisphere Regional Economic Outlook).

So, are housing vulnerabilities emerging?

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