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Economic Survey of Latin America and the Caribbean 2009-2010

The Distributive Impact of Public Policies

image of Economic Survey of Latin America and the Caribbean 2009-2010

In 2009, the countries of Latin America and the Caribbean experienced the brunt of the global financial crisis on their levels of activity. However, since the second half of the that year, most countries in the region just begun a vigorous recovery that should strengthen with a regional GDP expansion of approximately 5.2 per cent. The factors behind a more positive performance are both external and internal in nature. Amongst the former can be included the continued dynamism of some key Asian economies, whose sustained demand for products from this region has created important conditions for a recovery in exports, especially in the case of South America.

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Paraguay

Following six years of positive growth, Paraguay’s GDP fell by 3.8% in 2009, which was equivalent to a 5.5% drop in per capita GDP. Despite having implemented an expansionary fiscal policy to mitigate the negative effects of the international crisis, the government achieved a small public accounts surplus of about 0.1% of GDP. A fiscal stimulus of some 3.9% of GDP provided through public spending compensated in part for the downturn in private consumption. The intense drought that hit the country in 2009 caused a sharp 25% decline in the activity of the agricultural sector, which is the largest sector of the Paraguayan economy. Inflation came down from 7.5% in 2008 to 1.9% in 2009. A similar drop was seen in most of the region’s countries and may be attributed to falling international commodity prices associated with the global economic slowdown. The nominal exchange rate against the dollar rose by 14.4% because of the dollar’s appreciation and the slack performance of Paraguay’s external sector. The current account deficit narrowed to US$ 196 million (1.4% of GDP). In 2010, the economy is projected to expand on the back of higher external and domestic demand and a more buoyant agricultural sector. ECLAC forecasts GDP growth of around 7%.

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