In 2011, the South American economies continued to grow strongly, supported by resilient domestic demand. Besides, growth rates were fairly similar in the different countries in the region, and they were not negative in any country. The main driving force for growth was investment in fixed capital, mainly from the private sector, taking advantage from the improved business climate in the region, as well as from the high demand for commodities. Transport infrastructure, energy and housing are other sectors that headed up the rise in investment. In addition, the good financing conditions have supported expansion of lending to companies and individuals, thus allowing further banking penetration in practically all the region, without any negative effect on the quality of the portfolios. This effect has been possible through higher employment rates and wages and the formal labor market widening. The latter also had a positive impact on private pension funds, with an increase in contributions. Furthermore, commodity prices in Latin America and the growth of exports to Asia both remained high, despite major corrections. This provided further support to the sound growth outlook. However, it is worth noting that this growth is heading towards a soft landing that would in fact be well received in some countries. Turbulence in Europe and the U.S. led to greater difficulties in the financial markets in the region, as demonstrated by the increased market volatility and the reduction of capital inflows. However, many countries still have a considerable buffer (sounder public finances and better macroeconomic management than in the past) and are in a good position to introduce stimulus policies to counteract weaker foreign demand. In general, a more negative external environment has shifted the focus in emerging countries from overheating to downside risks and, increasingly, to the possible need for support policies. As a result, the cycle of interest-rate rises has come to a halt. Although the intensification of global financial tensions has generated expectations of cuts in official interest rates, such cuts have not been implemented in a widespread manner, partly because the latest inflation data have tended to be somewhat higher than expected. The tone of central bank statements is now more cautious and suggests that interest rates will be maintained at current levels for longer than expected.
In terms of exchange rates evolution, there were general appreciations in the official exchange rates of the main currencies in the region during the year. The exceptions were the Argentinean and Chilean pesos, which depreciated. In average terms over the last 12 months all the currencies except for the Chilean peso weakened. To sum up, the impact of exchange rates over the last year is positive for the balance sheet but negative for earnings. Unless otherwise indicated, all comments below refer to changes at constant exchange rates.