UNITED NATIONS - The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) has called for prudent approach to macroeconomic management in 2008 the face of what it describes as "global uncertainty".

"Probable international economic slowdown and recent macroeconomic warning signs highlight the importance of prudent economic management to avoid a return to the difficulties of the past," ECLAC said in its "Preliminary Overview of the Economies of Latin America and the Caribbean 2007".

"Latin America and the Caribbean have experienced a favourable economic situation since 2003, characterized by the growth of most of their countries.

"While this trend continued during 2007, the region is facing a more complex external context, due to the high volatility of international financial markets due to the US housing market crisis."

ECLAC said this is accompanied by the "relative deterioration of certain macroeconomic trends," including increased inflation and fiscal results that are "less solid than the previous year".

It said many of the challenges facing the region reflect the need to manage macroeconomic policies to allow it to take advantage of its current growth, so it can allocate extra resources to activities that contribute to sustainable development.

ECLAC said, despite several positive elements of the current phase of economic growth, changes were underway that, while they do not affect 2008 growth, challenge economic policy.

It identified these as increased public spending, "lesser dynamism" for exports of goods and a reversal of the declining inflation rates of the past several years, among others.

ECLAC said these are taking place within the context of greater international financial volatility, as evidenced by the rise in the region's levels of country risk.

It said inflation rate is increasing overall, under pressure from demand, in response to sustained growth in consumption and supply in response to the increase in food and energy prices.

At the same time, ECLAC said public expenditure is expanding, not only above nominal Gross Domestic Product growth, but also above increases in income.

"The pro-cyclical behaviour of public expenditure does not generate fiscal problems over the short term, due to increased resources.

"But it does generate concern to the degree that it could imply reduced space for fiscal operations in the future," it added.

In this context, ECLAC noted the importance of two, sometimes conflicting, priorities: increasing social expenditure and infrastructure to improve physical and human capital; and the search for "greater fiscal policy manoeuvrability" to achieve long-term sustainability.

"In the current stage of growth, the alternative of a more austere fiscal policy that tends to compensate for factors related to this expansive phase of the economic cycle appears to be the best strategy, as it can alleviate inflationary pressure, decompress the credit market and reduce interest rates," ECLAC said.