CRISIS OF CONFIDENCE BATTERS SOUTH AMERICAN EXPENDITURE.South American households and businesses alike are cutting back on expenditure as confidence in the region's economic future falters. Commercial and industrial expenditure will be particularly hard hit as businesses find it increasingly difficult to borrow money for expansion. This comes at a time when foreign direct investment is being diverted to developing nations in Asia and Eastern Europe Eastern Europe
The countries of eastern Europe, especially those that were allied with the USSR in the Warsaw Pact, which was established in 1955 and dissolved in 1991. where investment risk is deemed to be lower.
Part of the problem lies in the fact that confidence in free-market capitalism has declined, but no viable alternative model has emerged. After a year of experimentation with orthodox economic policies, 44 percent of Latin America's residents live in poverty and the number of unemployed has more than doubled.
In spite of optimistic op·ti·mist
1. One who usually expects a favorable outcome.
2. A believer in philosophical optimism.
op growth projections early this year, it now appears that 2002 will draw to a close with no significant growth in household expenditure. Declining purchasing power Purchasing Power
1. The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you'd be able to purchase.
2. in Argentina and Brazil will be enough to drive year-on-year losses in South American household expenditure in excess of 5 percent this year. Deterioration in household budgets will continue into the first quarter of 2003, with modest signs of a weak recovery likely by midyear mid·year
1. The middle of the calendar or academic year.
a. An examination given in the middle of a school year.
b. midyears A series of such examinations. . South America's wild card is Brazil, where a default on foreign debt coupled with further deterioration in the value of the national currency (the real) could delay a South American recovery beyond 2003.
High-end spending in South America South America, fourth largest continent (1991 est. pop. 299,150,000), c.6,880,000 sq mi (17,819,000 sq km), the southern of the two continents of the Western Hemisphere. will remain depressed through the remainder of this year and at least the first few months of 2003. Product categories that will suffer most from delayed expenditure include new cars, building materials Building materials used in the construction industry to create .
These categories of materials and products are used by and construction project managers to specify the materials and methods used for . , and major appliances A major appliance is usually defined as a large machine which accomplishes some routine housekeeping task, which includes purposes such as cooking, food preservation, or cleaning, whether in a household, institutional, commercial or industrial setting. .
Imported goods with euro or dollar-based prices will find it extremely difficult to remain cost competitive in South America over the next year. Argentina and Brazil, which are home to about 60 percent of South America's consumers, have experienced dramatic devaluations this year that will give local products and services a pricing edge at least until mid-2003.
Projected growth in South American demand for household services, non-durables, and perishable goods PERISHABLE GOODS, Goods which are lessened in value and become worse by being kept. Vide Bona Peritura. will not materialize this year. For South America as a whole, sales of those products and services should be down 3 to 5 percent during 2002, relative to the level one year earlier.
What is most worrisome about South American household consumption is that nations considered to be the bastions of regional stability (Chile and Uruguay) could not sidestep side·step
v. side·stepped, side·step·ping, side·steps
1. To step aside: sidestepped to make way for the runner.
2. the continent's decline. With no South American nation spared the contraction in private sector expenditure, it will be very difficult to attract foreign direct investment in the short- to medium-term.
The two strongest engines of industrial development on the continent (Argentina and Brazil) are in a state of crisis. A strong influx of domestic and foreign investment is needed in order to remain globally competitive, but it appears that capital investment will remain elusive into 2003. Year-on-year losses in capital purchases will be down more than 5 percent, with the greatest year-on-year losses noted in Argentina.
Depressed domestic sales will contribute to stagnant stagnant /stag·nant/ (stag´nant)
1. motionless; not flowing or moving.
2. inactive; not developing or progressing. industrial demand for intermediate goods, raw materials, and services through the remainder of 2002 and first quarter of 2003 in all MERCOSUR member nations (Argentina, Brazil, Paraguay, and Uruguay). Industries in both Paraguay and Uruguay are heavily dependent on sales to Argentina and Brazil, which bodes ill for export growth until at least midyear 2003.
In most South American nations, an oppressive debt burden makes it impossible for governments to jump-start consumption through stimulus packages. As a result, the region will probably not experience sustainable private sector recovery until global economic recovery sets in.