Tuesday, June 19, 2018

Economic Growth a Struggle for Latin America in 2016

By on February 16, 2016

Economic growth for Latin America in 2016 will be marginal, at best, according to most economic forecasters, including the World Bank, which further characterizes growth in the region as “anemic.”

“The macroeconomic outlook across Latin America in 2016 is expected to be complex and still beset with significant uncertainties and risks. We expect the economy to experience a very shallow, feeble, flat recovery, basically coming from a contraction of about 0.5% in GDP [gross domestic product], to a very weak expansion of less than 0.5% in GDP,” said Alberto Ramos, head of Latin America Research for the investment and banking firm Goldman Sachs.

The culprits for such a weak outlook for the Latin American economy are the persisting effects of the declining prices for commodities, such as crude oil and other raw materials, and what many economists have euphemistically called the “domestic challenges” affecting the largest economies of the region, referring specifically to the political power struggles in countries such as Venezuela, Brazil, Argentina and Peru. It is because of the latter that analysts believe there will be very little advances, if any, in terms of fiscal and/or monetary policies that may push forward significant economic growth in the region.

In Argentina, recently elected President Mauricio Macri has initiated a series of macroeconomic adjustments that are expected to take all of 2016 to implement. But while Macri’s administration has assured it will stay the course, some of its early measures have proven to be very unpopular, such as the dismissal of several thousand government employees, to the point of rioting in the streets.

In contrast, Venezuela seems to be at a standstill waiting for the administration of President Nicolás Maduro and the opposition-controlled National Assembly to come to some sort of agreement that can reactivate the country’s ailing economy. During the recent election campaign, the opposing Mesa de Unidad Democrática emphasized the need to rehabilitate the economy, but it seems to have concentrated its efforts on political measures such as freeing alleged political prisoners and removing government officials from office and appointing new ones.

For World Bank analysts, there seems to be some differences among the subregions, with stronger growth in both Central and North America, as well as the Caribbean that could compensate for the weakness in the economic outlook for South America. This could be the case for Mexico, whose GDP is expected to increase “a little less than 3%.” The reasons for such a difference, when compared to the region’s forecast, could be a better managed economy, no significant macroeconomic imbalances, no exposure to China, limited exposure to commodities and increasing demand from the U.S. market, accompanied by significant integration with the U.S. business cycle.

But as “feeble” as the economic outlook for Latin America may be, it is not exclusive to the region as both advanced economies and emerging markets have similar outlooks.

Global economic growth for 2015 fell short of expectations after the drastic fall of oil prices, while flagging trade and capital flows and episodes of financial volatility stifled many economies. The possibility for a stronger outlook now seems to depend on the continued economic health of high-income countries, the stabilization of oil prices (as well as the price of other commodities) and China’s (the largest emerging market) transition to a consumption-based economy, according to the World Bank.


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