Latin America and the Caribbean: Bouncing Back from Recession
IMF News, May 19, 2017
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- Published: May 19, 2017
Regional outlook and recent performance
- Economic growth in Latin America and the Caribbean in 2016 was the third-lowest in 30 years—contracting by 1 percent after stagnating in 2015.
- The IMF forecasts growth to expand by 1.1 percent this year and 2 percent in 2018.
- Over the medium term, growth is expected to remain subdued at 2.6 percent.
- The outlook is shaped by a modest rebound in commodity prices and partner country demand, higher global policy uncertainty, and significant domestic developments in many economies.
Key risks and drivers
- External drivers: modest rebound in commodity prices, partner country demand, and heightened global policy uncertainty.
- Domestic drivers: weak domestic demand from lower commodity prices, ongoing fiscal and external adjustment in some countries, and country-specific domestic factors.
- Policy implication highlighted by Alejandro Werner: with heightened policy uncertainty at the global level but low market volatility, countries should focus on insuring against downside risks while targeting strong, sustainable, and inclusive growth.
Policy recommendations and structural priorities
- Advance fiscal and external adjustments to preserve or rebuild policy buffers (for example, by improving primary balances to stabilize rising public debt).
- Pursue domestic reforms tailored to country circumstances, including:
- Closing infrastructure gaps.
- Improving the business environment.
- Strengthening governance and tackling corruption.
- Improving education outcomes.
- Deepening regional trade integration.
- Encouraging female labor force participation.
- These policies aim to raise future growth by increasing contributions from labor, capital, and productivity.
Regional roundup — country and subregion notes
- Argentina: recovery under way; growth is expected to grow 2¼ percent in 2017, driven by a rebound of private consumption, stronger public capital spending, and a pickup in exports.
- Brazil: after two years of recession, growth is expected to return to positive territory—estimated at 0.2 percent in 2017—supported by a bumper soybean crop, one-time boost to consumption, a faster-than-expected decline in inflation, and higher iron ore prices.
- Venezuela: the economy is expected to remain in a deep recession and on a path to hyperinflation; real GDP is expected to fall by 7.4 percent in 2017.
- Chile: despite slightly better external conditions, the outlook remains subdued, with growth in 2017 projected at 1.7
- Colombia: an orderly economic slowdown continued last year as domestic demand adjusts to a permanent shock to national income; a mild rebound is expected in 2017.
- Peru: rapid growth in 2016; investment continues to lag and domestic headwinds related to a political bribery probe involving Odebrecht and severe flooding and landslides may drag on 2017 investment and growth.
- Mexico: real GDP growth is expected to decelerate to 1.7 percent in 2017; uncertainty about future trade relations with the United States and higher borrowing costs are expected to more than offset the positive effect from stronger U.S. growth.
- Central America, Panama, and the Dominican Republic: growth is expected to remain broadly unchanged from last year in 2017; strong U.S. growth will help support exports and remittances.
- Caribbean: prospects are improving; growth in both tourism-dependent economies and commodity exporters is projected to be in the 1.5-3 percent range for 2017 and 2018.
IMF Country Focus — Latin America and the Caribbean: Bouncing Back from Recession (May 19, 2017).