Regional Economic Outlook: Seizing the Momentum
Western Hemisphere, May 9, 2018
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Bibliographic details
- Published: May 9, 2018
- Series: Western Hemisphere
Executive summary and global outlook
- Broad-based acceleration of global growth in 2017 reflected in solid gains for the United States and Canada; both expected to grow above potential in the near term.
- Growth in both advanced and emerging market and developing economies expected to gain further momentum in 2018 and 2019, reflecting:
- effects of expansionary US fiscal policy,
- favorable global financial conditions,
- improved prospects for external demand.
- Near-term risks broadly balanced; medium-term risks tilted to the downside, including:
- possibility of a sharp tightening of financial conditions,
- escalating trade tensions and risks of a further shift toward protectionist policies,
- geopolitical strains.
- Policy focus recommended: build buffers, improve financial resilience, and strengthen potential for higher and more inclusive growth.
Chapter 1 — A synchronized global upturn and outlook for the United States and Canada
- World economy and global trade experiencing a broad-based cyclical upswing; global growth outcomes and the outlook for 2018–19 improved since October 2017.
- Positive near-term spillovers from US tax policy changes.
- Favorable global financial conditions supporting recovery despite some tightening and market volatility in February and March.
- Higher commodity prices improving outlook for commodity exporters.
- Medium-term prospects tilted downward: subdued growth prospects for advanced economies; many emerging market and developing economies projected to grow in per capita terms more slowly than advanced economies, raising income convergence concerns.
- Policy implication: build buffers, improve financial resilience, strengthen potential growth and inclusion.
Chapter 2 — Outlook for Latin America and the Caribbean
- After a contraction in 2016, growth in Latin America and the Caribbean turned positive in 2017; growth expected to gain further momentum in 2018 and 2019.
- Recovery broad-based: Mexico, Central America, and parts of the Caribbean benefiting from stronger US growth; uncertainties from US tax reform and NAFTA renegotiations.
- South America recovery led by end of recessions in Argentina, Brazil, and Ecuador; higher commodity prices; moderation of inflation enabling monetary easing.
- Remaining challenges:
- further fiscal consolidation needed in many countries to restore sustainability,
- calibrate quality, speed, and composition of fiscal adjustment,
- elections may heighten economic and policy uncertainty.
- Medium-term structural challenges require comprehensive reform agenda: strengthen institutional and policy frameworks, boost productivity, increase trade and financial liberalization.
Chapter 3 — Credibility, communication, and monetary policy procyclicality in Latin America
- Large and persistent exchange rate depreciation has inflationary impacts prompting reexamination of monetary policy responses.
- Central bank credibility—reflected by anchoring of inflation expectations—critical for policy responses to external shocks.
- Stronger transparency frameworks and clear communication associated with:
- more predictable policy decisions,
- better anchoring of inflation expectations,
- greater room to maneuver interest rate policy amid transitory inflation shocks.
Chapter 4 — Fiscal multipliers and consolidation in Latin America and the Caribbean
- Rising public debt driven by lower global commodity prices, slower growth, and past expansionary policies -> need for fiscal consolidation.
- New database of fiscal policy actions estimates fiscal multipliers in the region to lie between 0.5 and 1.1, suggesting consolidation will be more contractionary than previously thought.
- Despite contractionary effects, multipliers are small enough to suggest consolidations will improve debt dynamics even in the short run.
- Heterogeneity of expenditure multipliers implies consolidation plans should preserve public investment to support growth and employment.
Chapter 5 — Poverty and inequality in Latin America
- Latin America made impressive progress in reducing inequality and poverty since the turn of the century but remains the most unequal region in the world.
- Declines in inequality and poverty especially pronounced for commodity exporters during the commodity boom.
- Much progress reflected real labor income gains for lower-skilled workers, especially in services; government transfers played a smaller but positive role.
- With the commodity boom over, fiscal tightening, and poverty rates edging up in some countries, policies need recalibration to sustain social progress.
- Policy options highlighted:
- increase personal income tax revenues while rebalancing spending,
- maintain key social transfers and infrastructure spending,
- better target social transfers,
- reform decentralization frameworks.
Key statistics and dated references preserved from source
- Years and periods: 2016; 2017; 2018; 2019; 2018–19; October 2017; February and March.
- Fiscal multiplier estimates: between 0.5 and 1.1.
Regional Economic Outlook: Seizing the Momentum — full page overview content
Content in this bundle
- Regional Economic Outlook: Western Hemisphere - Chapter 1; April 2018
- Regional Economic Outlook: Western Hemisphere - Chapter 2; April 2018
- Regional Economic Outlook: Western Hemisphere - Chapter 3; April 2018
- Regional Economic Outlook: Western Hemisphere - Chapter 4; April 2018
- Regional Economic Outlook: Western Hemisphere - Chapter 5; April 2018
- Regional Economic Outlook: Western Hemisphere - Executive Summary; April 2018
- Regional Economic Outlook: Western Hemisphere - Seizing the Momentum; April 2018
References
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