Fitch predicts healthy 2006 GDP growth in Latin America

Fitch Ratings said external conditions remain relatively favorable for Latin American sovereigns in early 2006, with commodity prices high, global growth robust and spreads on emerging markets bonds historically low. These factors should help underpin healthy GDP and export growth for the region in 2006, the agency predicted.

The agency estimated that the Latin American region grew at an average rate of 4.1% in 2005, after showing 5.7% growth in 2004, and forecast that Latin American regional growth will decelerate to 3.4% in 2007 from 3.9% in 2006, still above the region's five-year average growth rate of 2.6%.

The region is expected to run a current account surplus in 2006. This, coupled with strong capital inflows, should lead to a steady increase in international reserves in the region, which reached $250 billion last year, the agency said.

The main risks to the relatively favorable outlook for Latin America include sharp increases in U.S. interest rates and widening credit spreads, a global slowdown, a hard landing in China, which could have knock-on effects on commodity prices and a political shock if the new Latin leaders that emerge from the 2006 elections prove unwilling to adhere to orthodox policies, the agency said.

However, given the substantial improvements in external financial ratios and macro policy frameworks across the region, most countries are in a better position to cope with such shocks than in the past.

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