Globalized, resilient, dynamic : The new face of Latin America and Carrabin

The Latin America and Caribbean (LAC) region has shown a high degree of resilience during this global crisis, compared to its own past and to other (financially globalized) emerging regions. To be sure, LAC's average growth rate fell steeply, by about 6.7 percentage points from 2007 to 2009. But this was a decline in growth comparable to that in the East Asian Tigers and much smaller than the growth collapse of 13 percentage points experienced by Eastern Europe. Furthermore, the region began to recover alongside middle income countries and ahead of the rich nations, and is having recovery that, again, compares well with that of the East Asian Tigers. Both regions are expected to basically recover by 2011 the level of economic activity that would have been reached if the crisis had not happen. Brazil is clearly ahead of the pack within the LAC region. The report is structured as follows. First, it evaluates the relative performance of LAC countries during the contractionary (peak-to-trough) period generated by the recent global crisis, to shed light on LAC's ability to shield its economies or soften the blow of a large external shock. Second, a similar exercise is conducted for the recovery phase of the cycle, when in the aftermath of an external shock more resilient countries would be expected to have a faster and more robust recovery. Third, it takes a deeper look at the different driving forces behind the recovery, including the role of domestic demand, commodity prices, and the connection to emerging Asia. Fourth, it provides evidence of the ability of different countries in LAC to conduct counter-cyclical policies in response to the global financial crisis. Lastly, a concluding section warns about the main macro-financial tensions and challenges lying ahead for the region.