Latin America and the Economic Crisis

Opportunities and Risks for Latin America after the Crisis

Essay, 2011

7 Pages, Grade: 1,3



The crisis and its impact

The 2008 economic crisis has had profound economic and political impacts across the globe. Although every continent was affected somehow by the crash in 2008, the vigor of the impact and the subsequent recovery differed quite significantly throughout the world. A case-by-case analysis by regions is therefore necessary to draw conclusions from the past and generate assumptions on the future.

As illustrated in figure 1, world output was negative in 2009 as a consequence of the turmoil of 2008. Despite a global GDP decline of 2%, developing countries managed to keep growing at a reduced rate, meaning that the overall recession was largely driven by the developed countries (-4% in 2009).i

Figure 1 World Output Growth 2004-2010

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Figure 2 Evolution of U.S. Disposable Income

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As a matter of fact, disposable income in the US declined for the first time in more than 50 years (see figure 2)ii. The corresponding data for Europe is no more appealing and underlines how hard the developed world was hit by the crisis.

A closer look at the data for developing countries on the other hand shows that they managed much better not only during the crisis, but also in the post-crisis period. It is predicted that growth in Brazil and many other emerging-market economies will outdistance the U.S. and the European Union in the near futureiii. Although large parts of the global post-crisis growth in 2010 and 2011 have been driven by the BRIC countries, of which only Brazil is in Latin America, the latter appears to have come over the crisis in quite a strong fashion. As can be seen in figure 3, Latin America experienced a moderate recession of 2.1% of GDP in the aftermath of the crisis, before resuming growth with a staggering 5.6% in 2010 and further strong predicted growth in 2011 and 2012.iv Figure 4, which was published in a recent Economist article, underlines that Latin American countries and other emerging markets are outdistancing developed economies in terms of economic growth in the post-crisis period.v

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Figure 3 Real GDP Growth Rates LA + Caribbean 2007-2010

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Figure 4 GDP Growth Rates 2010 by Region

Despite recovery important risks remain for Latin America

Despite certain risks associated with an overall post-crisis economic situation that is still fragile, I assert that the post-crisis period represents an opportunity for Latin America to step-out of the shadow of the United States and the rest of the developed world. I see an opportunity for the region to increase its political weight in a world in which the geopolitical balance is currently being redefined, and where the contours of a multipolar world-order discretely become visible.

It is unquestionable that the crisis also bears a series of risks for Latin America. First of all, the 2008 global economic crisis did without a doubt also hit Latin America and the rest of the developing world. Although as already mentioned the crisis had a profounder impact on Europe and the U.S., the economic dependence of Latin American became clear in 2009. The crisis originated in the U.S. with the burst of the housing market bubble and the collapse of Lehman Brothers before tearing down European Banks and the real economy. The resulting strong decline in demand for Latin American commodities and other export goods was largely responsible for the moderate contraction of the region’s economy by 2.1% of GDP in 2009. This highlights that a certain dependence of Latin America from the developed countries is still present even though it might have decreased in recent years.

The present global economic situation is far from stable and recent economic indicators point towards a new cooling of the world economy as a consequence of continuous high unemployment rates in the U.S. and the failure of European politicians to solve the sovereign debt crisis. These economic risks and uncertainties might again have spillover effects on Latin American economies, which could endanger the region’s ambitious development plans. As Reid explains: ‘Latin American cities typically reflect in concrete and cardboard the injustices of the wider society: they are marked by large pockets of poverty as well as ostentatious wealth.’vi It seems evident that sluggish economic growth is a risk that would hamper the region’s efforts to combat structural problems such as poverty and inequality.


i Heiner Flassbeck, Trade and Development Report, UNCTAD, Geneva, 12 November 2010,

ii Heiner Flassbeck, Trade and Development Report, UNCTAD, Geneva, 12 November 2010,

iii Roett, R. (2010) The New Brazil, Washington D.C.: Brookings Institution, p. 1-17.

iv UN, World Economic Situation and Prospects 2011

v A game of catch up, The Economist, September 24 2011,

vi Reid, M. (2007) The Forgotten Continent, New Haven : Yale University Press, p. 1-29

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Latin America and the Economic Crisis
Opportunities and Risks for Latin America after the Crisis
University EAFIT
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ISBN (eBook)
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Latin America, Crisis, recession, 2008, opportunities, risks, post--crisis, BRIC, Brazil, Emerging Economies, Multipolar world, Economic power, global power
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Leonard Coen (Author), 2011, Latin America and the Economic Crisis, Munich, GRIN Verlag,


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