Latin America’s Economic Slowdown Continues

SUMMARY

As the global recovery continues to struggle to gain its footing, growth in Latin America and the Caribbean has been marked down further and is likely to contract for the second consecutive year in 2016, the IMF said.

 
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  • Growth forecast marked down further
  • Lower for longer commodity prices, China slowdown pose serious challenges
  • Managing key transitions, addressing structural weaknesses can boost potential output
  • The IMF’s latest Regional Economic Outlook for the Western Hemisphere, released on April 27 in Mexico City, projects that the region is set to contract by 0.5 percent in 2016—marking two consecutive years of negative growth for the first time since the Latin American debt crisis of 1982–83. This rate, however, masks the fact that many countries continue to grow, modestly but surely, whereas a small number of economies—representing about half of the region’s economy—face recession largely as a result of domestic factors.

    The deceleration in activity reflects weak external demand, further declines in commodity prices, volatile financial conditions, and for some important domestic imbalances and rigidities, the report said. At the same time, many countries have continued to experience large exchange rate depreciations, mainly as a result of deteriorating terms of trade and external demand.

    For 2017, the IMF expects the region to bounce back to 1.5 percent growth.

    Regional mix

    Brazil is mired in a deep recession with growth contracting by 3.8 percent—the same rate as in 2015—due to economic and political problems. Chile’s growth is expected to slow to 1.5 percent in 2016, reflecting subdued confidence and sluggish investment in the mining sector. Argentina and Venezuela face output contractions of about 1 percent and 8 percent in 2016, respectively. But Argentina’s medium-term growth prospects have improved noticeably as a result of an ongoing transition to remove domestic imbalances and distortions and correct relative prices. On the other hand, Peru’s economy has strengthened and growth is expected to rise further in 2016—to 3¾ percent, primarily boosted by ongoing mining investment.

    Given the continued recovery in the United States, the growth outlook for Mexico and Central America remains relatively robust. Mexico is expected to grow at a moderate 2.4 percent in 2016. Countries in Central America have benefited from low oil prices and solid U.S. growth. Output growth for the region is projected at 4¼ percent in 2016.

    In the Caribbean, growth prospects continue to be favorable for the tourism-based countries. In contrast, growth prospects are deteriorating for commodity-based economies.

    Downside risks

    The regional outlook is subject to various...

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