## Outlook for the Americas: A Tougher Recovery

_IMF Blog, July 23, 2018_

## Source details

**Canonical URL:** [Outlook for the Americas: A Tougher Recovery](https://www.imf.org/en/blogs/articles/2018/07/23/blog-outlook-for-the-americas-a-tougher-recovery)

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## Bibliographic details
- Authors: Alejandro Werner
- Published: July 23, 2018

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### Regional growth and momentum
- Latin America region expected to grow by 1.6 percent in 2018 and 2.6 percent in 2019, up from 1.3 percent in 2017 but down from April projections.
- Growth momentum is more differentiated than projected in April: accelerating in some countries and tougher for some of the largest economies due to amplified market pressures combined with country-specific vulnerabilities.

### External environment and risks
- Positive external factors:
  - Growth in the United States continues its strong pace, benefiting economies in the region with close ties to it.
  - Higher commodity prices are providing support for the region’s commodity exporters.
- Negative/uncertain external forces:
  - The upturn in global demand is not as strong as expected in all countries, increasing downside risks to the region’s external demand.
  - Global financial conditions are gradually tightening despite being still accommodative overall.
  - Financial market pressures have been particularly pronounced in countries with weaker domestic fundamentals or political/policy uncertainty.
  - Escalating trade tensions and conflicts are increasing downside risks through higher uncertainty and lower investment.

### Domestic forces and monetary/fiscal stance
- Domestic demand:
  - Some commodity-exporting countries are experiencing recoveries in business and consumer confidence, boosting domestic demand.
  - In some large economies domestic demand is expected to weaken due to policy uncertainty related to upcoming elections or near-term policy tightening.
- Monetary policy:
  - Many central banks in the region have suspended their monetary policy easing cycle; monetary policy support going forward is likely to be more limited.
- Fiscal policy:
  - Fiscal adjustment is needed over a number of years to achieve sustainability.
  - Recommendation: “Now is the time to gradually but steadily rebuild fiscal buffers.”
  - Fiscal consolidation would subtract from near-term growth but higher global growth and commodity prices provide a narrow window of opportunity.
  - Quality of fiscal adjustment matters: prioritize education spending and tackle infrastructure bottlenecks to ensure inclusive and sustainable growth.

### Country and subregion highlights — South America
- Argentina:
  - Growth projected to turn negative in the second and third quarters of 2018.
  - Drought reduced agricultural yields; May–June currency pressure increased inflation and lowered investor confidence.
  - Growth in 2018 expected to slow to 0.4 percent, with a gradual recovery in 2019 and 2020 under the Fund-supported stabilization program.
- Brazil:
  - GDP growth for 2018 revised down to 1.8 percent because of tighter global conditions and the recent truckers’ strike.
  - The real depreciated by about 13 percent since the beginning of the year.
  - Inflation declined to record lows and is projected to increase towards the midpoint of the inflation target in 2019 as the output gap narrows.
  - The central bank ended its easing cycle in May.
  - Efforts to pass pension reform have stalled ahead of the 2018 elections.
- Chile:
  - Growth in 2018 upgraded to 3.8 percent (from 3.4 percent) due to strong rebound in business and consumer confidence.
  - Inflation expected to gradually converge towards the target of 3 percent.
- Colombia:
  - Growth is gathering momentum as private consumption and exports strengthen, supported by higher external demand and oil prices and an ongoing monetary easing cycle.
  - Private investment is likely to pick up later in the year aided by tax reform and oil-price recovery.
  - Medium-term prospects aided by a stronger infrastructure investment program.
- Peru:
  - Growth in 2018 expected to increase to 3.7 percent, supported by high commodity prices and countercyclical fiscal and monetary stimulus.
  - Growth should rise to above 4 percent in 2019–20, driven by private sector domestic demand amid gradual fiscal consolidation.
  - Headline inflation expected to gradually increase to the center of the central bank target range by end-2018.
- Venezuela:
  - Real GDP projected to fall by about 18 percent in 2018 — the third consecutive year of double-digit declines in real GDP.
  - Expectation that the government will continue to run wide fiscal deficits financed entirely by an expansion in base money.
  - Projection of a surge in inflation to 1,000,000 percent by end-2018 to signal similarity to Germany in 1923 or Zimbabwe in the late 2000’s.
  - Collapse in economic activity, hyperinflation, deterioration in public goods provision, and shortages at subsidized prices have resulted in large migration flows and intensifying spillover effects on neighboring countries.

### Country and subregion highlights — Mexico, Central America, and the Caribbean
- Mexico:
  - Outlook clouded by protracted uncertainty related to NAFTA renegotiation with the United States.
  - GDP growth in 2018 still expected to accelerate compared to last year.
  - Growth for 2019 was revised down to 2.7 percent to reflect the impact of prolonged trade-related uncertainty on investment and, to a lesser extent, private consumption.
  - Inflation expected to continue to fall in 2018, with the central bank maintaining a tight monetary policy stance.
  - A clear commitment to fiscal responsibility and continuing reduction of the public debt ratio by the newly-elected administration seen as crucial.
- Central America and the Dominican Republic:
  - Robust U.S. growth and higher remittances underpin a strong growth performance in 2018.
  - Political uncertainty in Nicaragua and temporary disruptions in the construction sector in Panama weigh on domestic demand.
  - Regional growth for 2018 revised down slightly to 4 percent.
- Caribbean:
  - Economic prospects generally improving, supported by higher U.S. growth.
  - Reconstruction from the 2017 hurricanes in tourism-dependent countries has been largely delayed so far but is expected to pick up in 2019.
  - Rising commodity prices projected to lead to moderate growth for commodity exporters in 2018 and 2019.

*Alejandro Werner, July 23, 2018*

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## References

- [Português](https://www.imf.org/pt/News/Articles/2018/07/20/blog-outlook-for-the-americas-a-tougher-recovery)
- [https://www.imf.org/wp-content/uploads/2018/07/BLOG-1024x600-wernersoutlook-vendors-on-bicycles-robertharding-newscom-rhphotos277541.gif](https://www.imf.org/wp-content/uploads/2018/07/BLOG-1024x600-wernersoutlook-vendors-on-bicycles-robertharding-newscom-rhphotos277541.gif)
- [https://www.imf.org/wp-content/uploads/2018/07/eng-07232018-werner.jpg](https://www.imf.org/wp-content/uploads/2018/07/eng-07232018-werner.jpg)
- [fiscal consolidation would subtract from near-term growth](https://blog-dialogoafondo.imf.org/?p=9606)
- [https://www.imf.org/wp-content/uploads/2018/07/eng-july-16-werners-outlook.png](https://www.imf.org/wp-content/uploads/2018/07/eng-july-16-werners-outlook.png)
- [World Economic Outlook Update, July 2018](http://www.imf.org/en/Publications/WEO/Issues/2018/07/02/world-economic-outlook-update-july-2018)
- [How the Commodity Boom Helped Tackle Poverty and Inequality in Latin America](https://blogs.imf.org/2018/06/21/how-the-commodity-boom-helped-tackle-poverty-and-inequality-in-latin-america/)

_Source: https://www.imf.org/en/blogs/articles/2018/07/23/blog-outlook-for-the-americas-a-tougher-recovery_