Weaker commodities, forex main risk to LatAm: OECD

By Walter Brandimarte

NEW YORK (Reuters) - Further declines in commodity prices and inflationary pressures stemming from an associated currency slump are among the main risks for Mexico, Brazil and Chile next year, according to an OECD report released on Tuesday.

But Brazil is poised to start recovering faster than its peers from the pronounced economic slowdown that will hit the three Latin American economies in 2009, the Organisation for Economic Co-Operation and Development said in its economic outlook.

"The major emerging market economies will see some further deceleration in activity, reflecting weak demand in the OECD area, a re-pricing of financial risks and the lagged effects of earlier policy reactions to address inflationary pressures," the organization, whose 30 members are mostly high-income countries, said in the report.

Brazil's real GDP growth is expected to decelerate from 5.3 percent in 2008 to 3.0 percent in 2009, snapping back to 4.5 percent in 2010, largely supported by domestic demand, the OECD forecast.

"Activity (in Brazil) is expected to lose impetus in the first half of 2009, but to regain strength toward year-end and into 2010," the report said.

Meanwhile, the OECD estimates Mexico's GDP at market prices to grow only 0.4 percent next year and 1.8 percent in 2010, from an expected 1.9 percent rate in 2008.

"The main downside risk to the Mexican economy is that the downturn in U.S. activity will be deeper or last longer than projected, further affecting Mexico's exports, the inflow of remittances and tourism," it said.

Chile will still expand some 2.6 percent in 2009 and 3.1 percent in 2010, slowing down from an expected 3.9 percent real GDP growth this year, according to the organization.

The economy of the world's largest copper exporter, the OECD said, "should rebound in 2010 as its export markets start to recover and global financial market turmoil subsides."

FALLING CURRENCIES, RISING INFLATION

Despite the economic slowdown, inflation will not quickly disappear from the radar in any of the three countries, because the recent currency depreciation will likely put pressure on prices.

Brazil's central bank will likely resume its monetary tightening campaign that raised the Selic rate to 13.75 percent from 11.25 percent, the OECD said.

Mexico and Chile, it continued, may be able to loosen monetary policy in order to cushion their economy, but as long as the currency depreciation does not revive inflationary pressures.

While the Brazilian real has lost about 24 percent of its value so far this year, the Mexican peso has weakened nearly 19 percent and the Chilean peso posted losses of more than 26 percent during the same period.