Latin America Steps Up as the United States Takes a Break

The global economy is doing remarkably well.

 

However, it’s not the United States doing the driving anymore. After driving economic growth for the rest of the world from 2002 to 2005, the United States is taking a break. It’s now Latin America, Asia, Japan, and Europe that are grabbing the reigns to propel the global economy forward.

 

A quick look across the world highlights regional differences. Latin America is performing well, Asia is experiencing strong growth, China is likely to expand by a double-digit percentage once again this year, India is currently increasing its gross domestic product by slightly more than nine percent, Europe is performing slightly above its potential output, and Japan has finally returned to its underlying rate of two percent. The weakest link in the chain is the United States. It is affected by the lull in the residential real estate market, which directly and indirectly corresponds to nine percent of GDP.

 

Latin America’s emerging markets include economies that are offering important, new opportunities. Presently, growth rates in Latin America are higher than the forecasts, and the export of raw materials has led to a trade balance excess. Although there has been a swing to the Left in many countries over the past few years, economic needs should align with political processes and prevent any negative influence on the freedom of trade and logistics.

 

For Latin American economies to truly excel, the key is greater access to the global economy. Access enhances supply chain management through improved logistics, strengthened infrastructure, and better access to capital. SRI International, one of the world’s leading independent research and technology development organizations, conducted a study in 2006 entitled the Power of Access. The study found that access is directly related to commerce, growth, economic stability, reduction in poverty, and businesses’ operational capacity.

 

Greater access is possible through improved logistics operations. The significance of logistics is steadily increasing as globalization and world trade continue to grow. This is highlighted by four economic trends: faster delivery cycles for urgent just-in-time production, the linking of supply chain management, the strengthening of e-commerce through global delivery chains, and the integration of global production.

 

Improved logistics is leading to stronger regional economies. Take, for instance, Brazil and Argentina—two of the largest Latin American economies.

 

The Brazilian economy is on the right track. Difficult but necessary economic reforms are moving forward. One example is the implementation of a government initiative that aims to stimulate economic growth through infrastructure investments. In general, better infrastructure leads to a more robust economy.

 

Brazil is also well-positioned for sustained economic growth. Among its many resources, Brazil boasts an abundance of natural resources, a mild climate, a young population, and a wide range of industries. It also has one of the world’s largest surfaces of arable land, surpassing Russia, China, Canada, and even the United States. However, increased economic growth also means addressing infrastructure needs, strengthening fiscal discipline, reducing bureaucracy, increasing investments in higher education, reducing the size of informal sector, and maintaining Central Bank independence.

 

Argentina is another Latin American country on the right economic track, with a huge potential for growth. Similar to Brazil, the country’s economy benefits from rich natural resources, a highly literate young population, a temperate climate, an export-oriented agricultural sector, and the recent introduction of new industries.

 

Yet there is still considerable room for growth. The Argentine government should concentrate on improving infrastructure and productivity, implementing increased financial discipline, fighting corruption, and reducing bureaucracy. Greater macroeconomic stability will also attract more investors.

 

As the world economy marches forward, Latin America is playing a major role in its success and development. And, within the region, Brazil and Argentina are some of the principal players. The key for continued growth in these two countries, as well as across the region, is greater access to the global economy through enhanced logistics.

 

Gene Huang is Chief Economist for FedEx Services where he monitors all industries served by the company and is responsible for forecasting global economic and financial conditions. He is also managing director of the company’s Economic and Industry Analysis Group and is a member of the Board of Directors of the National Association for Business Economics, the Wall Street Journal Economic Panel, BusinessWeek Magazine’s Business Outlook Panel, and the Blue Chip Consensus Panel.