The latest on the economy of Latin America
Latin America has been in recession for almost two years and it looks likely that come the end of this year, the Latin American economy will have been in recession for a second consecutive year for the first time since the "Lost Decade" of the 1980s. But could it be making a triumphant return to the top in 2017? We take a look at the latest on the economy of Latin America below.
Click the image to open full-size infographic
What does Trump mean for Latin America?
The result of the U.S. presidential elections has called into question the future of U.S.-Latin America relations. Although President-elect Donald Trump did not articulate a detailed foreign policy approach towards Latin America during his campaign, trade and immigration—two of the key topics of the Trump campaign—are likely to dominate the agenda across the continent. Mexico is expected to be the hardest hit, and this goes beyond Trump’s relentless promise that his administration would build a wall between the two countries to stem the flow of illegal immigration. South American countries will be off the administration’s radar, although there is a high risk that protectionist policies could damage some of the countries’ agricultural exports to the U.S.
Investors in Mexico are nervous about Trump’s protectionist policies, and this was quite evident when the peso took a plunge on election day and fell further immediately thereafter. The currency, which had acted as a barometer throughout the presidential campaign, took the largest nosedive on record as it became clear that Trump’s promise to renegotiate the North American Free Trade Agreement (NAFTA) and build the now infamous wall could come to fruition. For now, the shock has been felt in consumer and business confidence, which could have some near-term effects in the form of weaker household consumption and reduced fixed investment. Should Trump follow through on his pledge to modify NAFTA or impose trade barriers, Mexico’s economy will be affected substantially as the economic ties between the two nations are strong, owing largely to NAFTA. The long-term effects on Mexico will largely depend on the extent to which Trump pursues his protectionist agenda.
Other trade relations could also be affected, in fact, it was recently announced that the Trans-Pacific Partnership (TPP), a free trade agreement (FTA) that incorporates 12 countries, including Chile, Mexico and Peru, has been abandoned. The U.S. already has FTAs with Chile and Peru, which have escaped Trump’s anti-trade rhetoric so far. Nevertheless, that the President-elect has given no attention to those treaties may reflect that manufactured exports from these countries to the U.S. are quite low, although the TPP would have helped to facilitate easier access to the American market for such exports.
The United States has had little engagement with South American countries, despite President Barack Obama’s promise of a “new chapter of engagement” with the country’s southern neighbors and improvements in trade facilitation. South America, Brazil in particular, appears to be out of the line of sight of the new administration and it is unlikely that there will be more active policies under Trump’s government. Nevertheless, U.S. agricultural companies lobbying Trump to introduce tariffs and non-tariff barriers on certain products represents a greater risk to South American economies. Tariffs on raw materials such as ethanol and steel could hurt Brazil, while greater U.S. protectionism against imports such as soybeans and other grains could cloud the outlook for U.S.-Argentina relations.
A potential hot spot is Venezuela. Despite years of anti-American rhetoric by former Venezuelan President Hugo Chávez, there was little conflict in practice. The U.S. is Venezuela’s largest export market and the Obama administration largely ignored verbal provocations by Hugo Chávez and Nicolás Maduro. However, this may change with Trump in power given that he wants to appear strong on the world stage. If this turns out to be the case, Maduro risks significant fallout if he continues to blame the U.S. for Venezuela’s misfortunes as Trump could be more likely to take retaliatory measures.
Regarding Central America and the Caribbean, there was little in the Trump campaign specifically directed against the economies that belong to the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA). Instead, the main economic risk to these economies would be through the immigration channel, given their heavy dependence on remittances from workers living in the U.S. Along with Mexico, these countries would be the most vulnerable to any change in the U.S. immigration policy, whether to strengthening the surveillance at the U.S. southern border—or the building of a border wall—or any attempt to deport about 11 million undocumented workers—most of them Latinos—in the U.S. Mass deportation is, however, deemed to be logistically impossible, yet the threat has the potential contribute to tensions between the U.S. and the region that would be a detriment to cooperation in other areas, such as security and the eradication of illegal drug trafficking.
On the bright side, Chinese President Xi Jinping embarked on a week-long visit to Latin America in mid-November that included state visits to Chile, Ecuador and Peru. Xi Jinping’s visit immediately followed events in the U.S. that have called into question the future of U.S.-Latin America relations, and highlights China’s emergence as a key trading and investment partner for the region. China signed several trade agreements with the aforementioned countries and appears open to the possibility of expanding its array of FTAs in Latin America just as major economies in the region are keen to purse more trade deals, and also at a time when the possibilities of developing stronger trade links with the U.S. and Europe appear increasingly difficult. Should the region embark on deepening trade agreements with China, a key priority will be the diversification of trade in order to reduce reliance on commodity exports.
Recovery to be modest in 2017 after abysmal performance in 2016
2016 marked a more challenging year for Latin America. After having stagnated in 2015, the region’s economy began to contract in early 2016 and the recession persisted through the third quarter. A regional aggregate estimate shows that Latin America’s GDP contracted 0.9% annually in Q3, which followed a 0.9% decrease in Q2. The result suggests that the region is starting to slowly emerge from recession. Nonetheless, economists project that this year Latin America will register its worst economic performance since the global financial crisis hit in 2009. Economic experts expect that the economy of Latin America will contract 0.7% this year, dragged down mainly by the deepest recession in decades in Brazil, the sharp economic contraction in Argentina resulting from its painful adjustment to new policies, as well as due to the most severe economic crisis in Venezuela’s history.
Next year, the region’s economy is expected to record a modest recovery, which is plagued with risks that are causing a downward bias for analysts’ growth forecasts for the region. Economists expect Latin America’s GDP to increase 1.8% in 2017, which has been lowered by 0.1 percentage points from last month’s forecast and contrasts the 2.4% growth that was projected in January of this year. Economic data has been stubbornly weak across the region in 2016 and growing uncertainty surrounding the global outlook in the aftermath of Donald Trump’s victory is weighing on the region’s sentiment, adding to concerns over the prospects for a recovery next year. The prospects that a Trump presidency might be both protectionist and in favor of a substantial fiscal expansion has altered expectations for U.S. monetary policy. Therefore, weakness is looming on the horizon for several currencies in the region, raising risks to a further tightening of monetary policy across the board.
Looking at the countries in the region, economists cut the 2017 GDP growth forecasts for 6 of the 11 economies surveyed, with notable revisions to Argentina, Brazil and Mexico. They maintained the forecast for four economies, including Chile and Peru, and improved the outlook only for Ecuador.
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Date: December 9, 2016
TagsCanada Japan Commodities OPEC Consensus Forecast G7 Euro Area TPP Brazil Gold Investment Eastern Europe Vietnam Bitcoin China Colombia Ukraine Oil Africa Australia Venezuela Economic Growth (GDP) European Union Energy Commodities Sub-Saharan Africa Portugal Italy Mexico Unemployment rate Brexit Banking Sector Trade Base Metals Commodities South Africa Asia Major Economies precious metals Precious Metals Commodities UK MENA United States oil prices India France Germany Cryptocurrency Housing Market Russia Turkey IMF Exchange Rate Agricultural Commodities Argentina USA Forex Greece Company News Inflation Nordic Economies Latin America Emerging Markets Healthcare Infographic Spain Tunisia Iran United Kingdom
Stronger-than-expected policy support could push Chinese GDP higher in the coming quarters. Find out more: https://t.co/WLNNkJMrMn
9 hours ago
Here are the highlights from our latest Consensus Forecast report for China. You can get the full report here:… https://t.co/2oVD3JeoHP
10 hours ago
10 hours ago
Angolan GDP is seen expanding 1.6% in 2018 and 2.2% in 2019, which is down 0.1 percentage points from last month's… https://t.co/tSHmrjKa7Q
11 hours ago
RT @dlacalle_IA: Commodities are starting to show some disinflationary pressures, except oil where supply manipulation keeps prices elevate…
11 hours ago
- Which ASEAN countries are most exposed in the event of a U.S.-China trade war?
- 75 Top Economics Influencers to Follow
- Emerging Markets Economic Outlook 2018 and 2019
- The Faces Behind Latin America’s Key Institutions
- 2019 Economic Outlook for the Top Oil Producing Countries
- Is your cup of coffee about to get more expensive going in to 2019?
- The Economic Implications of an Aging Global Population
- Can the Wisdom of the Crowds predict the results of the 2018 World Cup?
- Railway Mania: The Largest Speculative Bubble You’ve Never Heard Of
- From Riches to Rags: Have Cryptocurrencies Crashed for Good?
- Investment looks to Latin America, but forecasts are not encouraging
- Turkey: Erdogan has cemented his grip on power - now what about the economy?
- How can Latin America’s business environment benefit from technological change?
- Mexico: A look at the past, present and future as elections yield AMLO victory
- Italy’s New Populist Government and the Eurozone: Prelude to a Crisis?
- Latin America moves toward increased integration as U.S. protectionism grows
- How can Latin America increase productivity without affecting the quality of employment?
- How will Saudi Arabia's economy benefit from lifting the women's driving ban?
- Which countries are the most prepared for the upcoming digital revolution?
- India Under Pressure from the U.S. on Trade Policy
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- Elections in Russia: Analysis and Implications
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- The Poorest Countries in the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Venezuela's Electoral Conundrum
- Gold: The Most Precious of Metals (Part 3)
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- What will be the most miserable economies in 2018?
- The World's Top 10 Largest Economies
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit