Europe’s fiscal readjustment may cause Global recession
A readjustment of public spending in Europe could contribute to an economic slowdown and even cause a recession in the world economy, the head of the Latin American and Caribbean Institute for Economic and Social Planning (ILPES) said Thursday.
“Due to the trade it has with the rest of the world and considering the effects an economic deceleration can cause, this is a very important warning sign, especially for Europe,” Jorge Mattar said in an interview.
It could also affect Latin America, Mr. Mattar added.
Jorge Mattar said International financial organizations are worried that fiscal readjustment could lead to a recession.
The issue was discussed at a just-ended regional seminar in Santiago organized by ILPES, an assistant institution of the UN Economic Commission for Latin America and the Caribbean (ECLAC).
Mr. Mattar said public deficits in Latin America are manageable and some countries even have a primary fiscal surplus.
Chile for example, as its finance management and fiscal plan generate savings during the good times, which can be used in additional public spending to avoid larger damages in the economy, Mr. Mattar said.
“In general, the situation is favorable, although we should not trust too much, because this fiscal situation is due to the boom of raw materials, which in some cases have strengthened the fiscal income,” he said.
Mr. Mattar said ECLAC has asked the countries “to keep the rhythm of economic growth because we are conscious that there will be a deceleration due to the World economic crisis which will affect Latin America and the Caribbean.”
Mr.Mattar said governments should make an effort to keep the balance between public spending and public investment and to continue supporting infrastructure investment.
While it appears that China will have a deceleration, it would be “relatively small,” Mr. Mattar said.
China “is a very important engine of the World economy and, for many Latin American countries, especially the South Americans, is a fundamental market,” he added.
“China is an increasingly important partner, not only for trade but also for investments in Latin America, which can produce a more dynamic growth in the region,” Mr. Mattar said.
Paul A. Ebeling, Jnr.