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Latin America’s fast growth ending

Latin America’s fast growth ending

Posted by Juan Gavasa on April 25, 2014

The IMF’s Regional Economic Outlook for the Western Hemisphere projects growth of 2.5% this year, down from 2.75% in 2013. Weak investment and subdued demand for the region’s exports held back activity in 2013, as did increasingly binding supply bottlenecks in a number of economies.

For 2015, the IMF projects a modest pickup, to 3%. The key risk is a sharper decline in commodity prices caused by weaker demand. According to the report released here, Latin America still faces a number of downside risks. The key risk is a sharper decline in commodity prices caused by weaker demand from some of the major commodity-importing economies, especially China.

Although the effects from a gradual and orderly normalisation of US monetary policy should be contained for most of the region, increased capital flow volatility also remains a risk. Growth in the financially integrated economies – Brazil, Chile, Colombia, Mexico, Peru, and Uruguay – in 2014 is expected to remain the same as in 2013, at 3.5%. However, the average growth number masks considerable divergence across countries.

Mexico’s economy is expected to rebound to 3% this year owing to a stronger US recovery and normalisation of domestic factors. In Brazil, activity is expected to fall below 2% in 2014, as weak business confidence continues to weigh on private investment.

The IMF said the key policy priorities for the financially integrated countries include a careful calibration of macro-economic policies, a clear focus on reducing financial vulnerabilities, and stepped-up structural reforms to remove obstacles to growth.

Growth in the other commodity exporters – Argentina, Bolivia, Ecuador, Paraguay, and Venezuela – is projected to fall sharply in 2014, to about 2.75% from nearly 6% in 2013. The IMF said fundamental policy adjustments are needed in Venezuela to avert the risk of disorderly dynamics.

Further policy adjustments are also needed to restore macro-economic stability in Argentina, especially in the context of less favourable prospects for global commodity prices. The other economies in this group will also need to control levels of public spending, which have increased sharply over the past decade owing to strong commodity revenue.

Economic activity in Central America is projected at about 3.5 this year, similar to last year’s level. Looking ahead, the IMF pointed out that a consolidation of public finances is necessary to reduce fiscal and external imbalances, and to ensure debt sustainability. Consolidation efforts would have to include both expenditure restraint and higher tax revenues.

Growth remains tepid in most of the Caribbean. The tourism-dependent economies are expected to grow on average by 1.4% in 2014 and the commodity exporters by 3.2%.

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