Latin America and Caribbean: Seizing the Momentum
IMF News, May 11, 2018
Source details
- Canonical URL
- Latin America and Caribbean: Seizing the Momentum
Other formats
Bibliographic details
- Published: May 11, 2018
Regional growth outlook
- Growth for the region is estimated to increase from 1.3 percent in 2017 to 2 percent in 2018.
- For 2019, the report forecasts growth to continue to pick up to 2.8 percent.
- Following the recovery in private consumption in 2017, business investment is expected to rise and become the main driver of economic activity, after a three-year contraction.
- Investment levels are expected to remain below the levels as seen in other regions, limiting the region’s growth potential.
Key risks and uncertainties
- Noneconomic factors that could derail the recent recovery include political uncertainty due to upcoming elections in several countries, geopolitical tensions, and extreme weather events.
- Heightened external economic risks include a shift towards more protectionist policies and a sudden tightening of global financial conditions.
- The report notes longer-term growth prospects remain subdued, suggesting income levels are struggling to catch up to advanced economies.
Policy priorities and reforms
- Continue to adjust to place debt ratios on a sustainable footing with a special attention to the quality of the adjustment.
- Further improve central bank communication and transparency to better deal with future shocks.
- Invest more in people through more efficient spending in education.
- Improve infrastructure, which would also boost other investment in the region.
- Tackle corruption by improving governance and the business climate.
- Open up more to trade and financial markets as a step toward greater global integration.
- Protect gains from social spending.
Regional roundup and sector drivers
- Growth in South America is being led by the end of recessions in Argentina, Brazil, and Ecuador, higher commodity prices, and a moderation of inflation that has provided space for monetary easing.
- Mexico, Central America, and parts of the Caribbean are benefiting from stronger growth in the United States, though U.S. tax reform and NAFTA renegotiations are creating uncertainties.
- The outlook for Central America, Panama, and the Dominican Republic (CAPDR) remains favorable and growth is expected to remain above potential for many countries in 2018, reflecting U.S. and global growth momentum.
- Prospects for the Caribbean region are improving, with growth in both tourism-dependent economies and commodity exporters projected to be in the 1–2 percent range for 2018 and 2019.
Country-specific projections and developments
- Argentina: Current forecast is for real GDP growth of 2 percent in 2018. A severe drought will negatively impact agricultural production and exports in 2018; the negative impact is expected to be reversed next year.
- Brazil: Real GDP is expected to grow at 2.3 percent in 2018, driven by favorable external conditions and a rebound in private consumption and investment. The uptick will lead to a moderate deterioration of the current account. A key risk is potential policy changes after the October presidential election that could raise market volatility.
- Chile: Economic activity is gaining momentum after a prolonged slowdown. Mining and nonmining exports, as well as business investment, are leading the recovery, supported by solid household spending and slightly looser financial conditions.
- Colombia: Policy easing and a favorable global environment will lift growth to 2.7 percent in 2018. A mildly expansionary fiscal policy and the lagged effects of monetary easing will support domestic demand. Investment is projected to increase strongly thanks to infrastructure projects, oil sector projects, and the 2016 tax reform.
- Peru: Countercyclical macro policies are expected to help economic growth rebound to around 3¾ percent in 2018, but downside risks associated with the Odebrecht investigation persist.
- Venezuela: The economy is expected to contract by 15 percent in 2018, following a cumulative 35 percent contraction over 2014–17. The humanitarian crisis is intensifying with increasing scarcity of basic goods (for example, food, personal hygiene items, medicine), a collapse of the health system, and high crime rates, leading to a sharp increase in emigration to neighboring countries.
- Mexico: Output growth is expected to accelerate from 2 percent in 2017 to 2.3 percent in 2018, supported by net exports and remittances, contingent on uncertainty about NAFTA renegotiation outcomes, U.S. tax reform implications, and Mexico’s July presidential election.
Source: IMF — "Latin America and Caribbean: Seizing the Momentum", May 11, 2018. This report reflects developments and staff projections through early March 2018.