The Outlook for Latin America and the Caribbean in 2014
IMF Blog, January 30, 2014
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- Authors: Alejandro Werner
- Published: January 30, 2014
Global outlook
- Global economic growth expected to rise from 3 percent in 2013 to 3¾ percent in 2014, led by the advanced economies.
- U.S. growth projected to rise to 2.8 percent in 2014.
- Euro area activity expected to expand by 1 percent in 2014, following last year’s contraction; recovery will be uneven.
- Emerging markets and developing countries as a group expected to grow around 5 percent in 2014.
- China projected to grow 7.5 percent in 2014, about the same as in 2013, as policies slow credit growth and raise the cost of capital.
- Commodity prices expected to decline, especially nonfuel items: prices declining by about 6 percent over the year.
- Global financial market conditions expected to remain tighter than before the U.S. central bank’s “taper talk” in the first half of 2013, translating into higher international borrowing costs and potential volatility in emerging markets.
Regional growth projections and heterogeneity
- Overall regional growth expected to rise from 2.6 percent in 2013 to 3 percent in 2014.
- Volatility likely to be a significant feature of the landscape ahead; regional growth rates remain in low gear compared to historical trends and downside risks persist.
Subregional specifics:
- Mexico
- Growth expected to rise to 3 percent in 2014.
- Drivers: bounce in manufacturing exports and recovery in domestic demand as temporary factors that depressed demand in 2013 wane.
- Central America
- Remittances already growing 6.5 percent year-on-year in the third quarter of 2013.
- Growth for Central America as a whole expected to rise from 2.9 percent to 3.2 percent in 2014.
- Constraints/risks: high public debt and budget deficits in some countries.
- Caribbean
- U.S. tourist traffic to the Caribbean up some 7 percent year-on-year in November (2013).
- Tourism-dependent Caribbean countries expected to grow just 1½ percent in 2014.
- Caribbean commodity exporters expected growth of 3.7 percent in 2014.
- Constraints/risks: elevated public debt in some countries.
- South America
- Large, financially-open commodity exporters (Brazil, Chile, Colombia, Peru, and Uruguay) average growth expected to remain just under 4 percent in 2014.
- Uplift from global demand offset by weaker commodity prices and somewhat tighter financial conditions.
- Domestic conditions will matter substantially for outcomes.
- Brazil projected growth no higher than 2.3 percent in 2014 due to supply bottlenecks constraining output and pushing up inflation.
- Other commodity exporters
- Argentina and Venezuela experienced pressures on inflation, the balance of payments, and foreign exchange markets in 2013; these pressures are weighing on confidence and aggregate supply.
Risks and channels of vulnerability
- Low inflation in advanced economies could cause inflation expectations to drift downward, generating rising real interest rates (with short term rates near zero) or deflation in those economies.
- Weaker emerging markets growth could negatively affect commodity markets.
- Financial stability risks include rising corporate leverage and pressure on asset valuations if interest rates rise more than expected.
- Sustained turbulence in emerging markets could tighten global financial conditions further.
- Major global shifts increasing uncertainty: growth handoff from emerging markets to advanced countries; unwinding of stimulus in advanced countries and the Fed’s move towards the “exit” from extraordinarily accommodative monetary policy; rebalancing in China. Each shift could trigger volatility.
Policy recommendations and implications
- Policymakers should expect more turbulence and should not “rest easy.”
- Rebuild fiscal buffers.
- Use monetary policy and flexible exchange rates to absorb shocks where possible.
- Strengthen medium-term economic policy frameworks where helpful.
- Maintain close surveillance of financial systems for signs of strain.
- Pursue structural reforms to education, infrastructure, labor, and product markets throughout the region (including in the United States) to raise growth to a higher and more sustainable pace over time.
Source: The Outlook for Latin America and the Caribbean in 2014, Alejandro Werner, January 30, 2014.
Content in this bundle
- Perspectivas para a América Latina e o Caribe em 2014; Alejandro Werner
