Brazil & Southern Cone - November 2010 (ISSN 1741-4431)

The economy is still booming, though the rate of growth is beginning to slow. In August, the central bank's index of economic activity rose 7.6% year-on-year. This was slightly below independent forecasts but was the fastest rate since the end of 2004, the central bank noted.  The economy has now registered significant year-on-year GDP growth for five months in a row.

Month on-month, the August result for the Indicador Mensual de Actividad Económica (Imacec) was less impressive: it fell 0.2% over July. Nevertheless, the government has raised its overall real GDP growth forecast for 2010 from 5% to 5.1%. It is now expecting annualised growth of 6.1% in 2011.

The finance minister, Felipe Larraí­n, expects the economy to have grown at least 7% year-on-year in the third quarter. He argued that three engines are driving the economy: the first is the recovery from the sharp international slowdown in 2008/09; the second is the reconstruction effort after last February's earthquake; and the third engine is the government's own policymaking. The 2011 budget calls for spending of US$53.4bn. Public spending will rise by 5.5%, while social spending will rise by 14.9%.

Larraí­n said that the government would like to see 7% growth in 2011, but thought that 6% was eminently achievable. He reckons that this year the economy will have created 200,000 new jobs. In the three months from June to August, unemployment held steady at 8.3%, according to figures from the Instituto Nacional de Estadí­sticas (INE).  The unemployment figure was mildly disappointing and suggests that the job creating capacity of the economy is slowing. Only in the areas worst hit by the earthquake was there a perceptible increase in employment. Santiago, where 40% of all Chileans work, has an unemployment rate of 7.9%. On the other hand Valparaí­so and the southern regions of La Araucaní­a and Biobí­o have rates that vary between 9.5% and 10%.

• The peso problem

One problem is that exports are likely to start to falter if the peso continues to strengthen against the dollar. It is currently at Ch$487, having appreciated 11% against the US dollar in the past three months. This jump is the biggest of any Latin American currency against the dollar.