Outlook For Latin America And The Caribbean: New Challenges To Growth

from the International Monetary Fund

-- this post authored by Alejandro Werner

Economic activity in Latin America and the Caribbean stagnated in 2019, continuing with the weak growth momentum of the previous five years and adding more urgency and new challenges to reignite growth. Indeed, real GDP per capita in the region has declined by 0.6 percent per year on average during 2014-2019 - a sharp contrast from the commodity boom’s average increase of two percent per year during 2000 - 2013.

 

 

This weak momentum reflects structural and cyclical factors. On the structural side, potential growth remains constrained by low investment, slow productivity growth, a weak business climate, and the low quality of infrastructure and education. On the cyclical side, growth has been held back by low global growth and commodity prices, elevated economic policy uncertainty, economic rebalancing in some economies, and social unrest in others.

Regional challenges

Elevated policy uncertainty in several large Latin American countries continues to weigh on growth. For example, uncertainty about the course of economic policy and reforms in Brazil and Mexico likely contributed to the slowdown in real GDP and investment growth in 2019.

Continued economic rebalancing in stressed economies that experienced sudden stops in capital flows in 2018-19 (Argentina, Ecuador), while helping restore internal and external balances, have also acted as a drag on economic growth.

More recently, a few countries in the region experienced social unrest - Bolivia, Colombia, Chile, and Ecuador - which, in some cases, disrupted economic activity. Economic policy uncertainty has also risen in these countries as governments consider alternative policies and reforms to make growth more inclusive and address social demands.

Outlook and risks

As noted in the recent World Economic Outlook update, growth in the region is projected to rebound to 1.6 percent in 2020 and 2.3 percent in 2021 - supported by a gradual pick up in global growth and commodity prices, continued monetary support, reduced economic policy uncertainty, and a gradual recovery in stressed economies.

However, there are also prominent downside risks. While previous external downside risks have moderated following globally synchronized monetary policy easing and the signing of the U.S.-China phase one trade deal, some new risks have appeared, including the potential global spread of the coronavirus, which could significantly disrupt global economic activity, trade, and travel. Domestic and regional downside risks have also intensified. Social unrest could spike throughout the region, while economic policy uncertainty could rise further due to both heightened social tensions and policy slippages.

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Disclaimer: The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.

No content is to be construed as investment advice ...

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