Growth in Latin America Weakens for Fifth Year in a Row

Growth in Latin America and Caribbean to drop below 1 percent in 2015, modest recovery expected in 2016

South America’s growth weighed down by lower commodity prices; better outlook for Mexico, Central America, Caribbean

Region needs to tackle long-standing structural problems to raise investment, productivity

The IMF’s Regional Economic Outlook for the Western Hemisphere, released April 29 in Santiago, Chile, projects growth in Latin America and the Caribbean at 0.9 percent in 2015, down from 1.3 percent in 2014.

Near-term prospects remain fairly dim for South America, with output contractions projected in three of the largest economies for 2015—Argentina, Brazil, and Venezuela—while only Chile and Peru would see a pick-up in growth.

In contrast, growth is projected to be steady in Central America and the Caribbean, and strengthen in Mexico, thanks to lower oil bills for importers and robust economic recovery in the United States.

For 2016, growth in the region is expected to make a modest recovery to 2 percent.

Outlook still uncertain

The Regional Economic Outlook draws attention to the downside risks that could further complicate the outlook for Latin America.

Further possible weakness in commodity prices—perhaps related to a sharper downturn in China—would increase pressures on South America’s net commodity exporters. At the same time, financial risks have increased, following a long period of strong capital inflows and credit growth regionally and low interest rates globally.

Faster-than-expected U.S. growth would benefit its closest trading partners in the region, notably in Central America and Mexico, but could lead to faster normalization of U.S. monetary policy than currently anticipated.

The continued weakness in regional economic activity also heightens the risk of domestic policy missteps, especially attempts to stave off a structural slowdown with excessive policy stimulus.

Divergent trends

Growth dynamics among the region’s financially integrated economies—Brazil, Chile, Colombia, Mexico, Peru, and Uruguay—are expected to diverge over the period ahead, reflecting differentiated exposures to global commodity markets and other country-specific factors.

Brazil is experiencing the most serious economic downturn in more than two decades, with output projected to fall by 1 percent in 2015. Mexico, the second largest economy in the region, faces a comparatively favorable outlook. Growth is projected to expand by 3 percent this...