Latin America vulnerable to new downturn Latin America, which weathered the 2008-2009 financial crisis well and has been an engine of world growth in the past two years, is vulnerable to a further downturn in the global outlook, the Inter-American Development Bank has warned. In a report released in Uruguay at its annual meeting, the bank said increasing dependence on commodity exports, less room for fiscal manoeuvring, significant capital inflows and high exposure to Spanish banks were weak spots that could knock expected Latin American growth of 3.6 per cent this year off course. Potential triggers include a deepening of the crisis in Europe, a slowdown in China and a double-dip recession in the US. Nicolás Eyzaguirre, the IMF's top official for the region, told reporters in Montevideo the outlook for Latin America was "favourable, but still risky." Latin America, with growth of 3.8 per cent last year and 5.2 per cent in 2010, has accounted for 14 per cent of world growth for the past two years. The bank said many countries in the region had boosted financial supervision and public sector balance sheets, increased the share of debt in local currencies, grown reserves and used exchange rates as shock absorbers while keeping prices stable. However, none of the major economies are fiscally better placed to weather a financial storm than they were in 2007. Brazil and Argentina are in a similar position, while Mexico, Chile, Colombia and Peru are worse off, the bank says. "Although fiscal policy was used effectively during the recent global economic crisis, for perhaps the first time in the region's recent history with such downturns, some fiscal stimulus measures remain in place," the report said. The region is consequently less prepared to respond to a negative shock with countercyclical fiscal policy than it was before. Among the region's commodity-heavy countries - for eight of them commodities make up more than 50 per cent of exports - the most vulnerable to a Chinese slowdown and reduced investment by Beijing are metals producers. A three point fall in Chinese growth could slash commodities prices by 30 per cent, the bank said. A further risk is large capital inflows, representing more than 3 per cent of GDP in 2010 in net terms. They have a habit of sparking recession or bank crises. In addition, tougher times in Europe could hit banks with big exposure to Latin America and any disposals of units in the region could curb lending. Mr Eyzaguirre was upbeat about the outlook, seeing Latin America as enjoying "dream conditions." But, he stressed, real development hinged on turning riches from commodities into permanent growth by investing in infrastructure and education, widely seen as the biggest brakes on the region's potential.