July 23, 2018
Street vendors in Rio de Janeiro, Brazil: While growth is accelerating in some parts of Latin America, the recovery has become tougher for some of the largest economies (photo: Oliver Wintzen/Robert Harding/Newscom)
Economic activity in Latin America continues to recover. Following the pickup in domestic demand led by consumption in 2017, investment is finally gathering strength. […]
The global landscape has changed since our last update in October 2016. These changes have been mainly shaped by:
- An anticipated shift in the U.S. policy mix, higher growth and inflation, and a stronger dollar. In the United States—while potential policy changes remain uncertain—fiscal policy is likely to become expansionary, while monetary policy is expected to tighten faster than previously expected because of stronger demand and inflation pressures. As a result, growth is projected to rise to 2.3 percent in 2017 and 2.5 percent in 2018—a cumulative increase in GDP of ½ percentage point relative to the October forecast. The expected change in the policy mix and growth has led to an increase in global long-term interest rates, a stronger dollar in real effective terms, and a moderation of capital flows to Latin America.
- Improved outlook for other advanced economies and China for 2017–18, reflecting somewhat stronger activity in the second half of 2016 as well as projected policy stimulus.
- Some recovery in commodity prices, especially metal and oil prices, on the back of strong infrastructure and real […]
Following a rough start at the beginning of the year, both external and domestic conditions in Latin America and the Caribbean have improved. But the outlook for the region is still uncertain.
Commodity prices have recovered since their February 2016 trough, but they are still expected to remain low for the foreseeable future. This has been accompanied by a brake—or even a reversal—in the large exchange rate depreciations in some of the largest economies in the region.
Economic activity in Latin America and the Caribbean has been cooling down for several years, and the temperature in many places is still falling. Regional growth is now expected to dip below 1 percent in 2015—down from 1.3 percent in 2014. Apart from a short-lived recession during the global financial crisis, this would be the slowest rate of growth since 2002.
However, growth dynamics vary across the region, broadly along North-South lines. While spring may be in the air for Mexico, Central America, and parts of the Caribbean, the economic climate remains decidedly chilly in much of South America. What is behind these divergent prospects, and how can a sunnier outlook be restored to the entire region?
The turn of the year usually brings a fresh dose of optimism. Yet, worries dominate across much of Latin America and the Caribbean today, as 2015 marks yet another year of reduced growth expectations. Regional growth is projected at just 1¼ percent, about the same low rate as in 2014 and almost 1 percentage point below our previous forecast. Challenging external conditions are an important drag for many countries. Still, it’s not too late for some good New Year’s resolutions to address domestic weaknesses and improve growth prospects.
By Sweta Saxena
1. Are emerging markets slowing down? Yes. They have been slowing down for some time now. GDP growth has declined from 7 percent during the pre-crisis period (2003-8) to 6 percent over the post-crisis period (2010-13) to 5 percent, in our projections, over the next 5 years (2014-18). This path is illustrated below in Chart 1. This last point stands out. Despite an uneven recovery, growth in advanced economies is projected to eventually recover. Not so for emerging markets.