Latest Outlook for The Americas: Back on Cruise Control, But Stuck in Low Gear
IMF Blog, July 25, 2017
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- Authors: Alejandro Werner
- Published: July 25, 2017
Regional outlook and short-term projections
- Latin America expected to recover gradually in 2017–18 as recessions in a few countries—notably Argentina and Brazil—are coming to an end.
- Regional growth projections:
- 1 percent in 2017
- 1.9 percent in 2018
- Domestic demand remains weak across most economies and is expected to recover slowly as actual output catches up to potential and internal sources of growth build strength, contingent on a decline in political and policy uncertainty in some major economies.
- Some countries will need clear strategies to adjust following a permanent loss in commodity revenues.
Reverting to an underwhelming mean — medium-term prospects and structural challenges
- Medium-term per capita growth projection for Latin America: approximately 1.6 percent.
- Historical and comparative context:
- Identical to the region’s performance over the past quarter century.
- Below emerging and developing economies: 2.6 percent.
- Vastly below China: 9 percent.
- Essentially equal to advanced economies, indicating lack of convergence to advanced income levels.
- Concerns:
- Small contribution of productivity to overall growth raises sustainability concerns.
- Demographic transition to an older population will limit labor supply growth.
- Regional priorities and recommended structural reforms:
- Improve the quality of infrastructure and education.
- Facilitate women’s participation in the labor force where it is still low.
- Enhance governance and the rule of law to reign in corruption that is holding back investment.
- Further integrate regional trade and finance to create economies of scale and boost growth.
- Fiscal context: With medium-term growth projected to remain modest and fiscal space increasingly scarce, pursue structural reforms urgently to preserve and build upon improvements in living standards.
North and Central America, and the Caribbean — country and subregion snapshots
- United States:
- Growth estimate revised down to 2.1 percent for this year and next, as fiscal policy is no longer expected to deliver an expansionary impulse in 2017.
- Canada:
- Growth revised up from 1.9 to 2.5 percent for 2017 due to strengthening domestic demand, housing, a rebounding oil and gas investment, and a consumption boost from the Canada Child Benefit.
- Mexico:
- Near-term resilience despite heightened uncertainty about future trade relations with the United States; supported partly by a strong macro policy framework.
- Risks: Tight monetary policy could dampen private consumption; uncertainty will weigh on private investment ahead of NAFTA renegotiation starting late August.
- Policy note: Full implementation of the government’s structural reform agenda, including anti-corruption measures, would boost growth potential.
- Caribbean:
- Prospects improving in 2017; tourism-dependent economies benefit from sustained recovery in the United States; commodity exporters continue to adjust to lower commodity prices.
- Central America and the Dominican Republic:
- Economic activity remains robust, supported by:
- Low global oil prices that have fallen by 17 percent since January.
- Favorable financial conditions.
- Unusually high growth in remittance flows.
- Recommendation: Take advantage of favorable external conditions to strengthen fiscal, financial, and external buffers.
South America — heterogeneous outlook, country specifics, and policy implications
- General themes:
- 2017 growth revisions mixed across countries, driven by temporary factors.
- Eastern South America: favorable weather boosted harvests in Argentina, Brazil, Paraguay, and Uruguay; Bolivia’s growth holding up with accommodative policies.
- Western South America: El Niño caused flooding and landslides, reducing production in Colombia and Peru; Peru also affected by the Odebrecht investigation.
- External demand has firmed somewhat with an upward revision to China’s near-term growth outlook, but domestic demand remains weak in Chile, Colombia, and Peru.
- Currency stabilization and declining inflation in most South American countries reflect tight monetary policy, weaker labor markets, slower public spending, and lower oil prices—creating space for monetary easing to support recovery.
- Several years of weak investment and sluggish productivity threaten medium-term growth; structural reforms are urgently needed.
- Argentina:
- Recovery firming: private consumption benefits from gradual pick-up in real wages; investment supported by incipient credit growth and greater public works spending.
- Growth expectations:
- 2.4 percent in 2017—up slightly from the April WEO projection.
- About 2¼ percent in 2018, moderated by greater fiscal consolidation and continued tight monetary policy.
- Recent peso depreciation has helped correct overvaluation and, with improved demand from Brazil, should support export growth.
- Policy needs: further reduce fiscal imbalances, steadily bring down inflation, and advance ambitious supply-side reforms for stronger, sustained, and more equitable growth.
- Brazil:
- Growth returned to positive territory in Q1 after eight consecutive quarters of contraction, supported by a bumper crop, higher iron ore prices, a one-time boost to consumption from release of inactive severance accounts, and rapid monetary easing as inflation declined faster than expected.
- 2017 growth forecast slightly higher than April 2017 WEO following a strong Q1.
- Ongoing weakness in domestic demand and increased political and policy uncertainty expected to yield more subdued growth in 2018.
- Policy focus: ambitious fiscal sector reform to secure public finance and social security sustainability, and other structural reforms.
- Chile:
- Growth projected at 1.6 in 2017 and 2.3 percent in 2018.
- Outlook reflects subdued public and private consumption related to weaker labor markets and expected slowdown in public spending later this year.
- Growth set to pick up in H2 2017 aided by improved confidence and interest rate cuts amid rapidly declining inflation.
- Risk: unemployment may rise more than currently anticipated after several years of growth below potential.
- Colombia:
- Orderly economic slowdown continues with domestic demand—particularly investment—adjusting to a permanent national income shock from decreased oil prices, guided by timely policy tightening.
- Monetary policy easing as inflationary pressures dissipate should support near-term recovery.
- Medium-term supportive factors: peace agreement, infrastructure agenda, and investment-friendly tax reform.
- Peru:
- Slow start to 2017 due to Odebrecht scandal and El Niño-related flooding and landslides.
- Higher public investment expected to increase dynamism:
- Growth to close the year at 2.7 percent.
- Growth to accelerate to 3.8 percent in 2018.
- Authorities adopted a fiscally-led countercyclical policy stance to tackle El Niño-related reconstruction needs, financed primarily by buffers in the fiscal stabilization fund.
- Venezuela:
- Political and humanitarian crisis exacerbated by prolonged recession on a path to hyperinflation.
- Real GDP expected to contract more than 10 percent in 2017 after falling an estimated 18 percent in 2016, driven by projected declines in oil production and imports and increasing political uncertainty.
- Inflation expected to accelerate due to monetization of large fiscal deficits and loss of confidence in the currency.
- Downside risks: escalation or persistence of the political crisis could further harm growth and living conditions; worsening humanitarian conditions could increase migration to neighboring countries.
IMF blog post by Alejandro Werner, July 25, 2017.
Content in this bundle
- Perspectivas mais recentes para as Américas: Recomeça a marcha, mas em baixa velocidade
References
- https://www.imf.org/wp-content/uploads/2017/07/BLOG-Werner-LAC-1024x600-Vina-del-Mar-La-Florida-Chile-RODRIGO-GARRIDOREUTERSNewscom-rtrleight778597.jpg
- latest projections
- https://www.imf.org/wp-content/uploads/2017/07/Copy_ENG_Jul_20_LAC_table.jpg
- https://www.imf.org/wp-content/uploads/2017/07/ENG_Jul_20_LAC_chart.jpg
