Western Hemisphere Region

Rising Challenges

April 2014

Reports and Related Links:

Growth across Latin America and the Caribbean is expected to remain subdued at 2½ percent in 2014. The firming recovery in the advanced economies will support export activity, but this positive impulse is likely to be offset in many countries by the impact of lower commodity prices, tighter external financing conditions, and domestic supply bottlenecks. Renewed volatility in financial markets and a sharper-than-expected decline in commodity prices represent distinct downside risks. Faced with these challenges, policymakers should seek to preserve credible policy frameworks and ensure sufficient buffers to cope with adverse shocks. For fiscal policy, a neutral to tighter stance will be appropriate in most countries, while exchange rate flexibility and proactive supervision of the financial system should serve as the principal defenses against external volatility. To boost medium-term growth prospects, further efforts are needed to raise infrastructure investment, improve educational outcomes, and enhance the business environment.


Executive Summary
1.  The United States, Canada, and the World: Outlook and Policy Challenges
  Global Backdrop: Strengthening Growth, but Downside Risks Remain
  The United States: Recovery Gaining Ground, Momentum to Continue
  Canada: Facing a Challenging Rebalancing in Growth
2. Outlook and Policy Challenges for Latin America and the Caribbean
  Financially Integrated Economies
  Other Commodity Exporters
  Central America, Panama, and the Dominican Republic
  The Caribbean
  Annex 2.1. Data Disclaimer
3. Taper Tantrum or Tedium: How Will the Normalization of U.S. Monetary Policy Affect Latin America and the Caribbean?
  Spillover Channels
  Sensitivity of Bond Yields to U.S. Monetary Shocks
  A Capital Flow Perspective
  Illustrative Results from a Full-Fledged Macro Model
  Policy Implications
4. After the Boom—Commodity Prices and Economic Growth in Latin America and the Caribbean
  The Commodity Boom in LAC and Its Aftermath
  Growth in LAC after the Commodity Boom
  Annex 4.1. Technical Details
5. Has Fiscal Policy Become More Countercyclical in Latin America?
  Regression Results
  The Quality of Fiscal Policy
  Annex 5.1. Summary of Empirical Literature
List of Country Abbreviations
New Publications from the Western Hemisphere Department
1.1 Recent Trends in the U.S. Labor Force: The Role of the Hispanic Population
1.2 Unconventional Energy Boom in North America: Macroeconomic Implications and Challenges
2.1 Taking the Pulse: Leverage and Debt Servicing Capacity among Firms in Latin America
2.2 Potential Spillovers from Argentina and Venezuela
2.3 Energy Subsidies in Latin America and the Caribbean