Despite continued weak growth in the Latin American economy there may be increasing hope in government-led reforms
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.
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.
Besides the major oil-producing countries other Latin American economies are also presenting positive signs. Some examples include:
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:
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