The economy of Latin America will likely expand more quickly than previously expected in 2011, but is vulnerable to capital flows that may generate price bubbles, a United Nations' economic body said on Wednesday. The UN's Economic Commission for Latin America and the Caribbean, or ECLAC, raised its regional economic growth view to 4.7 percent for full-year 2011 from a previous forecast of 4.2 percent.
The region's economy will likely grow 4.1 percent in 2012, ECLAC said. However, the body warned that the movement of short-term speculative capital in the region could generate price bubbles in financial and real estate assets. The ECLAC also highlighted risks stemming from strong currencies in the region.
"The region's economic authorities must implement measures to ease currency appreciation, (by) combining exchange interventions, capital controls and financial regulations," it said in a regional economic report. Latin American nations have struggled to tame their currencies as a widening economic growth differential with rich nations has lured billions of dollars into the region.
In Brazil, which has one of the world's most overvalued currencies, economic growth could slow to 4 percent in 2011, ECLAC said. The Brazilian economy will likely also hit 4 percent in 2012, it said. A slowdown in economic activity in Latin America's biggest economy has allayed fears of overheating, ECLAC chief Alicia Barcena said in a news briefing.
Barcena said the body sees less risk of overheating in the region during the second half of the year as economic growth slows. Last month the International Monetary Fund lowered its forecast for Brazil's gross domestic product to 4.1 percent this year from 4.5 percent in April. Venezuela is seen growing 4.5 percent in 2011, after shrinking 1.4 percent in 2010 on weak domestic demand linked to a fall in state income and electricity rationing following a drought, the report said.
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