As we reported in January, the Latin America industrial gases market increased by 21 percent in 2010, after contracting in 2009, and was off to a strong start in early 2012 with several new projects pushing demand for industrial gases. We cautioned in January that uncertainty in global markets could limit growth going forward. (See “Global Economic Turbulence Rattles Latin America’s Strong Industrial Gases Market,” CryoGas, January 2012, p. 34.)
Today we see that the region is indeed beginning to feel the impact of unfavorable conditions in more advanced world economies where low or stalled growth translates into lower export growth, financial uncertainty, and sharp shifts in risk appetite. These conditions lead to volatile capital flows that produce ups and downs in exchange rates, which can be disruptive to the industrial gas business in Latin America, as discussed in this report.
The Latin American Economy
Despite the weaker than expected growth in other world regions, Latin America still recorded 4.5 percent growth in GDP in 2011. This was below the solid 6.1 percent enjoyed in 2010 but well above growth in the US (1.7 percent in 2011) and Europe (2.0 percent in 2011). Growth in Latin America reflects the good macroeconomic policy fundamentals of the region’s leading economies and strong internal demand supported by government policies. However, less favorable external financing conditions in 2011, in spite of high commodity prices, caused the appreciation of most Latin American currencies. This appreciation slows down exports and favors imports, making growth in industrial production modest in 2011.
In 2011, Brazil, the largest economy in the region, had GDP growth of only 2.7 percent. (See Figure 1.) The Mexican economy fared better, growing by 4.0 percent, thanks to the better performance of the US economy. The Argentinean GDP continued to grow by a strong 8.9 percent, while the economy of Chile went up by 5.9 percent recovering from the negative effects of the earthquake suffered in February 2010. Colombian GDP was up by 5.9 percent, and in Peru GDP grew 6.9 percent. In 2011, the Venezuelan economy recovered and GDP climbed by 4.2 percent after two consecutive years of decline.
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