Outlook for the Americas: A Tougher Recovery
IMF Blog, July 23, 2018
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- Authors: Alejandro Werner
- Published: July 23, 2018
Regional growth and momentum
- Latin America region expected to grow by 1.6 percent in 2018 and 2.6 percent in 2019, up from 1.3 percent in 2017 but down from April projections.
- Growth momentum is more differentiated than projected in April: accelerating in some countries and tougher for some of the largest economies due to amplified market pressures combined with country-specific vulnerabilities.
External environment and risks
- Positive external factors:
- Growth in the United States continues its strong pace, benefiting economies in the region with close ties to it.
- Higher commodity prices are providing support for the region’s commodity exporters.
- Negative/uncertain external forces:
- The upturn in global demand is not as strong as expected in all countries, increasing downside risks to the region’s external demand.
- Global financial conditions are gradually tightening despite being still accommodative overall.
- Financial market pressures have been particularly pronounced in countries with weaker domestic fundamentals or political/policy uncertainty.
- Escalating trade tensions and conflicts are increasing downside risks through higher uncertainty and lower investment.
Domestic forces and monetary/fiscal stance
- Domestic demand:
- Some commodity-exporting countries are experiencing recoveries in business and consumer confidence, boosting domestic demand.
- In some large economies domestic demand is expected to weaken due to policy uncertainty related to upcoming elections or near-term policy tightening.
- Monetary policy:
- Many central banks in the region have suspended their monetary policy easing cycle; monetary policy support going forward is likely to be more limited.
- Fiscal policy:
- Fiscal adjustment is needed over a number of years to achieve sustainability.
- Recommendation: “Now is the time to gradually but steadily rebuild fiscal buffers.”
- Fiscal consolidation would subtract from near-term growth but higher global growth and commodity prices provide a narrow window of opportunity.
- Quality of fiscal adjustment matters: prioritize education spending and tackle infrastructure bottlenecks to ensure inclusive and sustainable growth.
Country and subregion highlights — South America
- Argentina:
- Growth projected to turn negative in the second and third quarters of 2018.
- Drought reduced agricultural yields; May–June currency pressure increased inflation and lowered investor confidence.
- Growth in 2018 expected to slow to 0.4 percent, with a gradual recovery in 2019 and 2020 under the Fund-supported stabilization program.
- Brazil:
- GDP growth for 2018 revised down to 1.8 percent because of tighter global conditions and the recent truckers’ strike.
- The real depreciated by about 13 percent since the beginning of the year.
- Inflation declined to record lows and is projected to increase towards the midpoint of the inflation target in 2019 as the output gap narrows.
- The central bank ended its easing cycle in May.
- Efforts to pass pension reform have stalled ahead of the 2018 elections.
- Chile:
- Growth in 2018 upgraded to 3.8 percent (from 3.4 percent) due to strong rebound in business and consumer confidence.
- Inflation expected to gradually converge towards the target of 3 percent.
- Colombia:
- Growth is gathering momentum as private consumption and exports strengthen, supported by higher external demand and oil prices and an ongoing monetary easing cycle.
- Private investment is likely to pick up later in the year aided by tax reform and oil-price recovery.
- Medium-term prospects aided by a stronger infrastructure investment program.
- Peru:
- Growth in 2018 expected to increase to 3.7 percent, supported by high commodity prices and countercyclical fiscal and monetary stimulus.
- Growth should rise to above 4 percent in 2019–20, driven by private sector domestic demand amid gradual fiscal consolidation.
- Headline inflation expected to gradually increase to the center of the central bank target range by end-2018.
- Venezuela:
- Real GDP projected to fall by about 18 percent in 2018 — the third consecutive year of double-digit declines in real GDP.
- Expectation that the government will continue to run wide fiscal deficits financed entirely by an expansion in base money.
- Projection of a surge in inflation to 1,000,000 percent by end-2018 to signal similarity to Germany in 1923 or Zimbabwe in the late 2000’s.
- Collapse in economic activity, hyperinflation, deterioration in public goods provision, and shortages at subsidized prices have resulted in large migration flows and intensifying spillover effects on neighboring countries.
Country and subregion highlights — Mexico, Central America, and the Caribbean
- Mexico:
- Outlook clouded by protracted uncertainty related to NAFTA renegotiation with the United States.
- GDP growth in 2018 still expected to accelerate compared to last year.
- Growth for 2019 was revised down to 2.7 percent to reflect the impact of prolonged trade-related uncertainty on investment and, to a lesser extent, private consumption.
- Inflation expected to continue to fall in 2018, with the central bank maintaining a tight monetary policy stance.
- A clear commitment to fiscal responsibility and continuing reduction of the public debt ratio by the newly-elected administration seen as crucial.
- Central America and the Dominican Republic:
- Robust U.S. growth and higher remittances underpin a strong growth performance in 2018.
- Political uncertainty in Nicaragua and temporary disruptions in the construction sector in Panama weigh on domestic demand.
- Regional growth for 2018 revised down slightly to 4 percent.
- Caribbean:
- Economic prospects generally improving, supported by higher U.S. growth.
- Reconstruction from the 2017 hurricanes in tourism-dependent countries has been largely delayed so far but is expected to pick up in 2019.
- Rising commodity prices projected to lead to moderate growth for commodity exporters in 2018 and 2019.
Alejandro Werner, July 23, 2018
References
- Português
- https://www.imf.org/wp-content/uploads/2018/07/BLOG-1024x600-wernersoutlook-vendors-on-bicycles-robertharding-newscom-rhphotos277541.gif
- https://www.imf.org/wp-content/uploads/2018/07/eng-07232018-werner.jpg
- fiscal consolidation would subtract from near-term growth
- https://www.imf.org/wp-content/uploads/2018/07/eng-july-16-werners-outlook.png
- World Economic Outlook Update, July 2018
- How the Commodity Boom Helped Tackle Poverty and Inequality in Latin America
