How Latin America emerged from recession in 2017
After two years of economic contraction, Latin America and the Caribbean have begun to recover, thanks primarily to private consumption. The region’s economy contracted in 2016, but grew 0.9% in 2017, a positive result although it was nowhere near the global growth rate of over 3%. The World Bank’s foresees regional growth doubling this year and hitting 2.6% in 2019, which would be more inline with the global growth rate. The FocusEconomics Consensus Forecast poll of hundreds of analysts worldwide foresees growth in Latin America coming in at 2.4% in 2018 and projects an improvement to 2.7% in 2019.
Brazil was the main driver behind the region’s growth in 2017, with GDP coming in near 1% after two years of a tough economic recession. Behind the recovery was an improvement in private consumption, retail trade, industrial production and in labor market conditions. The other country that contributed greatly to the region’s recovery was Argentina, which saw economic growth of close to 3% in 2017 following a recession in 2016 thanks to investment dynamism and an increase in private consumption. Brazil and Argentina were just two of the five countries that escaped recession last year. That said, their contribution was offset by Venezuela’s double-digit economic decline. In fact, Venezuela and Trinidad & Tobago were the only two Latin American economies that remained in the red in 2017. On the bright side, Panama saw the fastest economic expansion at 5.5% growth, followed by Nicaragua, the Dominican Republic, Honduras, Bolivia and Costa Rica.
The Mexican economy, on the other hand, while growing less than the previous two years, expanded by around two points in 2017, thanks to consumption and good labor market conditions. Several Caribbean countries suffered damage to their infrastructure and a reduction in tourism due to strong hurricanes, which caused a slowdown in economic growth during the second half of the year.
Although 2017 results were generally positive, a reduction production in extractive industries in several commodity-exporting countries limited growth. In Colombia, a moderation in oil prices negatively affected the economy, while in Chile, mining production fell significantly due to strikes at the beginning of the year. Flood damage in Peru limited the economic expansion last year. On the other hand, political uncertainty, while negatively affecting countries such as Chile and Peru, did not have much influence on Brazil, which had already experienced a deeper political crisis.
Last year kicked off a return to growth for the Latin American and Caribbean economy. FocusEconomics Consensus Forecasts foresee growth in the double digits this year and growth nearing 3% next year. The World Bank projects 2% growth in 2018 and in the following two years. A variety of factors are behind analysts’ more optimist forecasts: stronger consumption, private investment growth and an improvement of export conditions, especially in commodity-producing countries.
But beyond the good omens, according to the World Bank report, the evolution of the Latin American economy presents certain risks. First, the political uncertainty that still affects countries such as Brazil, Peru and Guatemala. Second, the risk of an increase in international financial market instability. Third, a heightened fiscal deficit in certain countries. And finally, President Trump’s protectionist agenda and the possible elimination of the North American Free Trade Agreement (NAFTA).
*Guest blog post from Latinoamerica21
Jeronimo Giorgi, a Uruguayan journalist dedicated to international issues, is pursuing a master's degree in Latin American Studies. He has collaborated with various media outlets in Latin America and Europe, and has received distinctions such as the Premio Rey de España for Journalism.
Latinoamerica21 is a blog about current economic, political and social topics in Latin America that is currently published within the newspaper El Observador de Uruguay and Pagina Siete in Bolivia, and will soon be published in other media outlets within the region. The original version of this blog post is available in Spanish: Este año la economía de América Latina crecerá el doble que en 2017.
*Guest blog posts do not reflect the views of FocusEconomics.
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Date: January 24, 2018
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