## outlookpresentation

## Source details

**Canonical URL:** [outlookpresentation](https://www.imf.org/-/media/files/publications/reo/whd/2019/october/english/outlookpresentation.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/reo/whd/2019/october/english/outlookpresentation.pdf.md)
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### External factors and global headwinds
- External factors remain a headwind to economic prospects in the LAC region.
- Key external indicators shown:
  - LAC: Exports Growth (percent; series shown across Jan. 17–May. 19)
  - LA7: Non-LAC Trading Partners Real GDP Growth (Year-over-year percent change; weighted by exports)
  - Global Commodity Prices (Index: 2011 = 100) with series for Oil, Copper, Iron ore, Soybeans (2011–2024 index series shown).
- Financial conditions:
  - Ten-year Government Bond Yields (percent) and Sovereign and Corporate Spreads (basis points) for LA6 median and LA5 corporate series shown (2014–2019).
  - EPFR: Equity and Bond Flows (US$ billions); data until September 25, 2019.
- Summary point: External factors (trade tensions, commodity volatility, risk premia) are a persistent headwind, with easier global financial conditions providing only a partial offset.

### Growth projections and contributors
- LAC: Real GDP Growth (Year-over-year percent change); PPP GDP-weighted average; South America excludes Guyana and Suriname.
- Selected LAC: Contributions to Real GDP Growth (Percent; excludes Venezuela): components shown — Private consumption, Public consumption, Investment, Inventories, Exports, Imports; Real GDP growth for 2018, 2019 (Projected), 2020 (Projected).
- Projections table (2017 2018 2019 2020 Avg. 2021–24) — numeric values shown in source:
  - LAC: 1.2 1.0 0.2 1.8 2.6
  - LAC excluding Venezuela: 1.9 1.7 0.9 2.1 2.7
  - South America: 0.6 0.4 –0.2 1.7 2.7
  - Argentina: 2.7 –2.5 –3.1 –1.3 2.5
  - Brazil: 1.1 1.1 0.9 2.0 2.3
  - Chile: 1.3 4.0 2.5 3.0 3.2
  - Colombia: 1.4 2.6 3.4 3.6 3.7
  - Peru: 2.5 4.0 2.6 3.6 3.9
  - Mexico: 2.1 2.0 0.4 1.3 2.2
  - CAPDR: 4.0 3.9 3.3 3.9 4.1
  - Caribbean Tourism dependent: 0.8 1.8 1.4 1.1 1.9
  - Commodity exporters: –0.9 1.0 0.8 17.9 4.8
- Key projection insight: A modest recovery in 2020 is expected to be led by private consumption and investment.

### Confidence, scenarios, and downside risks
- Business Confidence and Consumer Confidence: normalized 3‑month moving averages; recent period shaded after April 2019 showing rebounds for AR, BR, CHL, COL, MEX.
- Scenario analysis for 2020 GDP Growth under different confidence scenarios:
  - Business Confidence scenarios (Pessimistic / WEO / Optimistic) presented for Brazil, Chile, Mexico (percent).
  - Consumer Confidence scenarios (Pessimistic / WEO / Optimistic) presented for Brazil, Chile, Mexico (percent).
- Downside risks to confidence could jeopardize the recovery.
- Risks to the near-term outlook remain tilted to the downside:
  - External: Trade tensions and lower global growth; Volatility in commodity prices; Sharp increase in risk premia.
  - Domestic: Increased policy uncertainty in some large economies; Financial contagion from Argentina; Further outward migration from Venezuela; Natural disasters.

### Labor markets, informality, and consumption
- Labor market indicators:
  - Brazil: Formal Employment (Year-over-year percent change).
  - LA4: Formal Employment (Year-over-year percent change) — simple average of Brazil, Chile, Colombia, Mexico, and Peru.
  - Real Wage Growth (Year-over-year percent change) for Chile, Colombia, Mexico, Peru.
- Finding: Lackluster labor markets are unlikely to provide much support to consumption and growth.
- Informality and unemployment dynamics:
  - Unemployment in LAC is less responsive to fluctuations in GDP (Okun's coefficient) compared with many advanced economies.
  - Informality acts as a “buffer”: it increases in downturns and decreases in upswings.
  - Charts illustrate Okun's coefficient and Informality’s Responsiveness to GDP Changes (No lags and One lag) across regions AE, EM, LAC, SA, CA+MEX.

### Migration from Venezuela: growth and fiscal impacts
- Impact of Venezuela’s Migration on Potential GDP Growth (Percent; average 2017–30): country series shown (values from 0.00 to 0.35 range), including PRY, CAN, USA, MEX, HND, GTM, BRA, BOL, ARG, URY, DOM, CRI, ECU, CHL, PER, PAN, COL, TTO.
- Impact of Venezuela’s Migration on Government Expenditure (Percent of GDP; 2023): country series shown (values from 0.00 to 1.0 range) including CAN, PRY, USA, MEX, BRA, GTM, HND, BOL, URY, ARG, DOM, CRI, CHL, PAN, TTO, PER, ECU, COL, ABW, GUY.
- Summary: Demographic and skills composition of migrants should lead to positive impact on potential growth; but provision of public services will be strained, increasing government expenditure.

### Financial conditions, credit, and external balances
- Financial Conditions Index and Real Credit Growth: FCI (0 = neutral; +/– = tight/loose) and Real credit growth (right scale) plotted across 2007:Q1–2019:Q1.
- Corporate Leverage (Debt to assets; percent) for nonfinancial corporations of Argentina, Brazil, Chile, Colombia, Mexico, and Peru (median/mean series 2014–2019).
- LAC: Current Account Balance (Percent of GDP; excludes Venezuela) 2002–2024 series.
- External Financing Requirements and Reserves, 2019 (Percent of GDP): External financing requirements calculated as the difference between short-term debt on a remaining maturity basis and current account balance; country-level bars shown (ARG GUY CHL SLV URY JAM COL GRD CRI BOL BLZ BRA PER MEX ECU etc.). 
- Summary: Broadly balanced external sector with adequate reserve buffers in most countries; neutral domestic financial conditions and modest credit growth are unlikely to significantly boost consumption and investment.

### Shocks, contagion, and scenario sensitivity
- Growth Response to a China Growth Shock and Higher Spreads: country-level responses shown with values (e.g., China growth shock and increase in sovereign spreads leading to negative impacts across LAC; axes showing –1.4 to 0.2 scale).
- Growth Response to a US Growth Shock and Higher Spreads: similar presentation showing negative responses (axis –1.4 to 0.2).
- Insight: The effects of ongoing trade tensions, through slowdowns in the US and China, could be large.

### Policy mix and recommendations
- Near term: Balance between rebuilding policy space and supporting growth.
  - Fiscal consolidation is a priority in many countries given high public indebtedness and still large fiscal deficits.
  - Monetary policy can remain supportive given well anchored inflation expectations in most countries.
- Medium term: Structural reform imperatives:
  - Improving the quality of infrastructure and education.
  - Further progress on governance.
  - Opening further to trade and foreign direct investment.
  - Addressing rigid labor market regulations to tackle informality.

### Fiscal space, spreads, and growth implications
- Fiscal Impulse (Percentage points of GDP; +/– = loosening/tightening) shown for AR GB RA CHL COL ECU MEX PER URY LAC for 2018 2019 2020.
- General Government Gross Debt, 2019 (Percent of fiscal year GDP) plotted across LAC countries; green bars refer to dollarized economies (Ecuador, El Salvador, Panama); note on St. Kitts and Nevis breakdown not available.
- Key point: Limited fiscal space to support growth and fiscal consolidation remains a priority.
- Evidence on spreads:
  - Consolidation announcements reduce sovereign spreads, especially in times of fiscal stress.
  - IMF supported-programs are also linked to higher reductions in spreads.
  - Consolidations that reduce spreads lead to smaller drag on economic activity in periods of high fiscal stress (local projection and PVAR estimates shown with confidence intervals).

### Monetary policy stance and exchange rate flexibility
- Inflation (Percent; end of period) and Real Policy Rates and Neutral Rates (Percent) across countries MEX BRA COL CRI PRY URY PER CHL etc.; series show target ranges for 2018 2019 2020 and real neutral rate positions.
- Monetary policy can remain supportive given stable inflation and well-anchored inflation expectations.
- Policy in sudden stops:
  - LAC countries are more prone to tighten fiscal policy and capital controls after sudden stops (percent of cases).
  - Costs of sudden stops are lower for countries with flexible exchange rates (Average Costs of Sudden Stops, Percent of trend GDP; All, LAC, Floating, Fixed).
  - In case of sudden stops in capital flows, exchange rate flexibility is pivotal.

### Structural reforms and productivity
- Structural Performance Indicators (Percentile ranks): Learning outcomes (PISA), Infrastructure (WEF), Ease of doing business (DB), Educational attainment (WDI) show LAC lagging advanced economies across indicators.
- Corruption Perception Index Distributions by Region, 2018 presented.
- Recommendation: Reviving productivity requires improving the business climate, education, and infrastructure.

*Source: outlookpresentation*

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_Source: https://www.imf.org/-/media/files/publications/reo/whd/2019/october/english/outlookpresentation.pdf_