Economy

Latin America Prepares for Strong Growth in 2017

Latin America is More Prepared than ever to Face a Crisis

June 16th, 2016
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The Latin American region is now stronger and more important for the globalised world than ever before. However, the economy is not yet fully developed, as it will face a contraction of 0.5% this year and will continue this negative trend for two consecutive years. The latest forecasts by the International Monetary Fund (IMF) have revised down the forecast made in January for the region for the first time since the debt crisis in 1982-83.

It seems, however, that this year Latin American economies will gain momentum and return to growth in 2017. The overall figures however signal a scenario that masks a very different reality.

Even though most of the countries’ economies will grow this year, they cannot compensate for the burden of contractions posed by Brazil, Argentina and Venezuela, which represent half of the Latin American economy.

Therefore, the countries that form the Pacific Alliance will be again the most dynamic. While Peru, Chile, Colombia and Mexico will move forward, Brazil is the country of most concern in the region. The economic crisis is connected to a political crisis that has shaken the institutional foundations of a country that, just five years ago, climbed to sixth place in the ranking of the most powerful economies in the world.

In Argentina, the agreement reached with the so-called vulture funds, returned Argentina to the international markets and it is expected that next year the Argentine GDP will become positive again. Venezuela is the country with the most severe symptoms, related to the fall in oil prices.

Next year all these countries are expected to improve their situation. According to the latest report on the Latin American economy by BBVA Research, this improvement will come from the external sector, supported by the recovery of world growth, depreciation of the exchange rate and some improvement in terms of exchange. A strong push in investment is anticipated in countries like Argentina, Peru and Colombia.

As explained by the IMF in its latest bulletin, "the economic policies of the region should aim to manage this transition period". Exporters of raw materials must readjust their production and to diversify their investments in order to accommodate the downward cycle of commodity prices. Governments, meanwhile, must learn to manage more meager accounts, forcing them to cut spending to maintain their commitment to reduce poverty and inequality.

References:

Cultural Diplomacy News
Iñaqui González, CD News