Likely ‘double dip’ recession ‘could harm’ regional economies

WASHINGTON, CMC – The chief economist for the Caribbean and Latin America at the World Bank warned on Thursday that a slide back to worldwide economic decline worldwide – a so-called double dip recession - could strain the region’s economies.



Augusto de la Torre said while the Caribbean and Latin American economies have developed strong immune systems against the global contagion, a worsening of the current market turmoil could put those defenses to the test.



He such “worsening” would occur if rich economies – the European Union, United States and other developed countries – dip into recession once again.



The World Bank analyst predicted a US slowdown would have a larger impact on its close trade partners, including Mexico, the Caribbean and Central America.



He added that those economies linked to China – essentially those in South America – would sustain a lesser impact, provided the Asian giant continues its current high growth trend.



“Over the last 20 years, the region has experienced a silent economic revolution that has provided a shield against external shocks, as we have witnessed in the previous crisis and those reforms are still in place ,” de la Torre said.



“Not even the best immune system in the world could withstand these kinds of attacks,” he said.



But in recent months, as countries great and small see their sovereign credit ratings slide, the US currency weaken, the Eurozone economies struggle, stock markets tumble and job growth figures stagnate, the World Bank economist warned that a worsening of the current turbulence – “a global turmoil of immense magnitude” – could impact the region’s ability to grow.



This week, share values on the world’s major bourses plummeted, wiping out more than 3.8 trillion dollars in investors’ holdings, forcing them to flee to safe havens, including Swiss francs, Japanese yen and gold.



The region’s stock markets also zigzagged, with their main indexes dropping an average of seven to eight per cent, and then gaining around 5 per cent in strong rallies.



The global markets calmed somewhat after the US Federal Reserve’s decision to maintain a very low interest rate – near zero – for the next two years.



Experts attribute the global market turmoil to a loss of investor confidence following this week’s US credit rating downgrade and Europe’s financial woes.



But De la Torre is confident that, should a crisis develop, the region’s outlook will remain positive, mirroring its resilience to the previous recession, when the region had a positive performance, thanks to high commodity prices and its increasing trade with China.



In the last decade 60 million people in the Caribbean and Latin America were lifted out of poverty, thanks to strong social protection networks in most countries which could offer protection again, the World Bank economist said.



“We believe that, if the situation worsens, the most vulnerable will be shielded, in part thanks to the existence of these structures,” he said.



In the short term, the global economic outlook remains uncertain, de la Torre said, stating that calm would only return once investors feel again confident that rich countries – the US and the European Union – have the capacity to introduce public policies to confront their economic growth problems.