I. Overview: Navigating Financial Turbulence
- International Monetary Fund. Western Hemisphere Dept.
- Published Date:
- April 2008
Financial sector shocks are expected to slow down the U.S. economy, despite substantial policy stimulus in the pipeline. This is projected to slow global growth to 3.7 percent in 2008 from 4.9 percent in 2007. The overall balance of risks to the short-term global outlook is tilted to the downside. Growth in the Latin American and Caribbean (LAC) region has been very buoyant in recent years, partly reflecting the commodity boom. But strong domestic demand coupled with supply shocks have created inflation pressures. The regional outlook is now being clouded by the stresses in global financial markets and the marked downturn projected for the United States. This chapter discusses (1) the U.S. financial shock and weaker outlook, (2) the transmission of global shocks to the LAC region through financial markets, commodity prices, and capital flows, (3) the risks for the LAC growth outlook balanced against ongoing inflation pressures, and (4) policy options for managing these risks in the LAC region.