Latin American Economy: Cause for Hope?

Despite continued weak growth in the Latin American economy there may be increasing hope in government-led reforms

Argentina's economic reforms will improve the economy

Argentina’s economy is improving on the heels of structural change

Once again the world media is reporting negatively on the Latin American economy and macroeconomic outlook. Headlines like “Growth in South America Weakens for Fifth Consecutive Year” or “Growth Weighed Down by Lower Global Commodity Prices” are commonplace. Its time to present a more positive perspective on this economically dynamic continent.

Current Performance of the Latin American Economy

On face value the Latin American economies are not particularly healthy, although differences exist between them which give cause for hope. Argentina, Brazil and Venezuela are in or close to recession brought about by low commodity prices. Venezuela is a strong example, however its economic situation is exceptional resulting from its heavy dependency on oil and mixed economic management. In Argentina, President Macri’s government is implementing major reforms aimed at integrating the country back into the global economy, including with the OECD in a bid to improve its credit ratings. Helped by the weaker peso exports are rising, and 2017 GDP growth is forecast at 3.3%.  Brazil is also emerging from recession with new economic reforms in train. The balance of payments is looking positive, with the halving of the current account deficit in 2015. Moreover the forthcoming Olympic Games should focus world attention on this huge country, and give its economy a feel good boost.  2016 growth is on course to be negative, but longer term prospects are fairly positive.

Latin American economy gives cause for hope

Despite current economic woes, the longer-term outlook is positive overall

The economic situation in other Latin American economies is generally upbeat

Besides the major oil-producing countries other Latin American economies are also presenting positive signs.  Some examples include:

  • Chile: copper prices have reduced output value, but expansion of  its huge lithium resources is underway. Consumption and investment are rising. 2016 growth will be 3.3%, increasing further in 2017
  • Colombia: the economy is stable and robust. Economic reforms (including tax/tax evasion) are in train and the economy is in good hands. Finance Minister Cardenas was recently voted South America’s most successful by EuroMoney and America Economia. 2016 growth will be 3.7% while longer term prospects are positive, with a potential peace dividend, and expansion of infrastructure, telecommunications, and the service sector (especially finance)
  • Peru: 2015 growth of 3.8% was boosted by growth in copper output (two new mines started operations), fishing (+49%) and primary manufacturing (+20%). Economic reforms and spending stimuli have helped expansion and increase in economic resilience. Despite poor global growth since 2008 and the fall in price of its key exports, Peru has avoided entering recession for the first time in its economic history
  • Uruguay: the 2016 economic growth forecast has recently been slashed. However, FDI, especially into natural resource development (including offshore oil), combined with continuing economic reforms  (including fiscal consolidation), will ensure economic robustness and longer term growth

Latin America’s economic performance, since the start of the global slow down in 2008/9, has shown much more resilience than in previous economic contractions.  For the first time in post-war economic history, many Latin American Governments were able to implement counter-cyclical fiscal policies in response to an external economic crisis. They were helped by revenues from 10 years’ worth of high global commodity prices, and reduced Government spending.

Latin American Governments now understand better how to counter external economic shocks, implementing flexible currency exchange rates systems, increased foreign exchange reserves (to cover minimally short-term external debt), and better macro-economic management (especially of inflation and fiscal reforms).

The key messages are:

  • South American economies are innovative and dynamic.
  • National Governments have learned the lessons of the past, are reforming their economies and strengthening macro-economic institutions.
  • Long term prospects are positive.
  • Latin America is open for business now!

For more information on the Latin America economy go here

Former British diplomat with 36 years’ experience of bilateral relations, commercial promotion and policy advising in Latin America, Europe, Africa and Australasia. Head of British High Commission, Papua New Guinea and Head of the British Embassy in Liberia. David is an experienced networker with a strong track record of promoting UK business in less developed markets.

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