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Latin America's economies: The wrong way

Latin America's economies: The wrong way

Posted by Juan Gavasa on July 02, 2014

It should be no surprise that Latin America’s years of plenty are over, along with the commodity boom that fuelled them. Even so, 2014 has been disappointing. Brazil putters along unimpressively; the promise of public spending has yet to ignite Mexican growth; even before its current standoff with holdout creditors, Argentina had gone into recession; and Venezuela is Venezuela. The region is expected to summon up growth of perhaps 2-3% this year.

The region’s first-half performance is summed up in the table alongside. Each week The Economist publishes forecasts for GDP growth in the coming year for countries around the world. Depending on the country, these forecasts are either drawn from a poll of analysts or sourced from the Economist Intelligence Unit, our sister company. If you compare the expected growth outcomes for 2014 in the first issue of this year and the most recent, Latin America does dismally. Forecasts have been downgraded in every single country.

Forecasts may not always be right, but they tend not to be irrational. The upward revisions in European growth reflect a genuine change in fortunes for the euro area’s peripheral economies; the slashing of Russian and Thai GDP forecasts comes on the back of political crises. Latin America’s downward trajectory also looks well-founded. The US economy has underperformed expectations, which slows down everyone; room for monetary and fiscal loosening is constrained; and Argentina and Venezuela have both suffered the consequences of their own policy errors.

Some of these 2014 forecasts will doubtless get upgraded again before the year is out. Colombia grew by a startling 6.4% in the first quarter, its fastest pace in more than two years. There are tentative signs of strengthening domestic demand in Mexico. But until the region solves the challenge of unleashing productivity growth, get used to dispiriting tables like this one.

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