The overall economy in Latin America is expected to come out of recession in 2010 with growth of +4.8%, as foreign direct investment in the region could potentially achieve record levels, according to the Institute of International Finance (IIF).

In 2009 the economy declined -2.3% having grown by +4% in 2008, however it is predicted to continue its growth in 2011 by a further +3.7% after growth in 2010.

Charles Dallara, IIF’s managing director, said: "Many of Latin Americas leading economies are displaying strong growth and are now on a steep recovery path, but formidable policy challenges are emerging on the horizon.

“As 2010 unfolds, the governments and central banks of many of the countries in the region may confront new challenges. These are likely to result from actions across the world to address formidable budget deficits and to exit highly stimulative monetary policies prompting rises in interest rates; upward pressures on some exchange rates in Latin America are likely; while we anticipate that inflation could be on the upswing in several countries in the region. Further, there are a number of important elections this year in the region that increase uncertainties about the directions of national policies.”

Brazil is predicted to be the fastest growing economy in the region with gross domestic product (GDP) likely to increase by +5.8% after flat growth in 2009. It will be closely followed by Peru and Chile with anticipated growth of +5.6% and +5.5% respectively. Peru was the only country in the region to see growth in 2009 albeit at a modest +1%, although this had fallen by -8.8% from 2008.

Mexico meanwhile is expected to see growth of +4.4% in 2010 and +3.5% in 2011 despite its economy having declined by -6.5% in 2009.

Frederick Jaspersen, IIF’s Latin America department director, said: “While the region’s economy is well underway, the pace and pattern varies widely among countries. Those that have pursued prudent macro-economic policies and pro-market reforms, and have access to global capital markets (Brazil, Chile, Colombia, Mexico and Peru) are forecast to grow an average +5.4% this year, but those that have not (Argentina, Equador and Venezuela) are see as growing by only an average of 3%. Inflation is under control in the first group of countries, but it is expected to accelerate this year to 28% in Argentina and 42% in Venezuela.”

Foreign direct investment in Latin America is expected to surge by +27% in 2010 to a "near-record" $85bn, with the regions international reserves seen increasing by almost $50bn to a record $539.5bn.