## Executive Summary

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### Global outlook and risks
- Global growth disappointed in 2016 but momentum picked up in the second half of 2016.
- Outlook for advanced economies improved for 2017–18, reflecting:
  - some rebound in manufacturing and trade, and
  - prospects of likely U.S. fiscal stimulus in the wake of the November elections.
- U.S. prospects: solid near-term economic growth with job creation and rising inflation; market sentiment strengthened with advancing equity markets, a stronger U.S. dollar, and higher U.S. interest rates.
- Emerging market and developing economies: growth prospects marginally worsened compared to last fall, but financial conditions have improved; financial risks and market volatility remain elevated.
- China: stronger-than-expected policy support implies stronger growth this year and next.
- Overall: global growth is envisaged to rise modestly in 2017 and 2018 but with widely dispersed risks.
- Global vulnerabilities include a rising tide of economic nationalism in major advanced economies marked by greater antipathy toward trade, immigration, and globalization.

### Regional outlook: Latin America and the Caribbean
- The region is recovering from a recession at the regional level in 2016.
- "Tale of two adjustments": growth was held back by weak domestic demand due to:
  - ongoing external adjustment to earlier terms-of-trade shocks,
  - in some cases fiscal adjustment, and
  - other country-specific domestic factors.
- Heterogeneity across countries:
  - relatively robust growth in Central America;
  - deep contractions in Argentina, Brazil, Ecuador, and Venezuela;
  - generally modest growth elsewhere.
- Regional activity overall is expected to pick up gradually in 2017 and 2018, but the outlook is weaker than projected last fall.
- Projection for medium-term growth remains modest at about 2.6 percent.
- The outlook is shaped by:
  - a modest rebound in commodity prices and in partner demand, and
  - higher policy uncertainty at the global level.
- Domestic fundamentals and developments will continue to play a significant role in determining growth in many economies.
- Risks to regional growth have widened in a setting of higher global policy uncertainty.

### Policy priorities and recommendations for the region
- In the challenging external context, countries should aim for completing fiscal and external adjustments to preserve or rebuild policy buffers.
- To chart a course toward higher, sustainable, and more equitable growth, strengthen structural reforms to:
  - close infrastructure gaps;
  - improve the business environment, governance, and education outcomes;
  - encourage female labor participation to boost medium-term growth and foster income convergence.
- South America: despite an improved external outlook, continue external and fiscal adjustment to structurally lower commodity revenues; reduce domestic distortions, resolve policy uncertainties, improve governance, and press forward with structural reforms.
- Central America and Mexico: given exposure to the United States through trade, migration, and FDI linkages, maintaining macroeconomic stability and market confidence in an environment of heightened uncertainty is crucial.
- Caribbean: prospects are improving, but public sector debt remains a major vulnerability.

### Key findings from analytical chapters
- External adjustment to terms-of-trade shifts:
  - Past adjustments in Latin America worked through compression of domestic demand and imports rather than supply and exports.
  - In the ongoing adjustment, real depreciations have boosted noncommodity exports and lowered imports more than in the past, and demand has shifted toward locally produced goods—alleviating the domestic demand compression needed to achieve external adjustment (a lower sacrifice ratio) for countries with flexible currencies.
  - The cost of external adjustment has increased for countries with more rigid exchange rate regimes, given increasing use of flexible regimes in trading partners and competitors.
  - The overall sluggish response of exports to real depreciations masks differences across industries, including a stronger export performance response for manufacturing goods than for commodities.
- Drivers and vulnerabilities of capital flows:
  - Following a decade of strong capital inflows, Latin America and other emerging markets are now facing prospects of weaker economic growth and financial flows.
  - Capital inflows are strongly influenced by global cyclical factors as well as country-specific structural factors.
  - Good governance and solid institutional and regulatory frameworks play a key role in attracting inflows over periods longer than the usual business cycle.
  - Deeper domestic financial markets with a large and stable domestic investor base, and allowing for more exchange rate flexibility, are effective ways to reduce the vulnerability of capital flows to external shocks.
- Migration and remittances:
  - Migration from and remittance flows to Latin America and the Caribbean have major economic and social ramifications for migrants’ home countries.
  - Outward migration in isolation may lower growth in home countries by reducing labor supply and productivity, but remittances mitigate these effects.
  - Remittances are a large and relatively stable source of external financing, notably in Central America and the Caribbean, and help cushion the impact of economic shocks.
  - Dependence on remittances primarily from the United States can pose risks due to cyclical reasons and possible changes to immigration-related policies in host countries.
  - Targeted reforms to leverage the pool of high-skilled and highly educated workers at home can help reduce outward migration and its adverse consequences.
  - Given the financing and stabilizing roles of remittances, policies to reduce transaction costs and promote the use of formal channels of intermediation merit support.

*International Monetary Fund | April 2017*

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_Source: https://www.imf.org/-/media/files/publications/reo/whd/2017/may/wreo0517-exesum.pdf_