The year 2019 looks to be a period in which global economic uncertainties, far from waning, will intensify and will arise from different fronts. This will have an impact on the growth of the economies of Latin America and the Caribbean, which, on average, are seen expanding 1.7%, according to new projections released today by the Economic Commission for Latin America and the Caribbean (ECLAC).
The United Nations regional organization unveiled its last economic report of the year, the Preliminary Overview of the Economies of Latin America and the Caribbean 2018, at a press conference led by its Executive Secretary, Alicia Bárcena, in Santiago, Chile.
According to the document, the countries of Latin America and the Caribbean will confront a complex global economic scenario in the coming years, in which less dynamic growth is expected, both for developed countries as well as emerging economies, along with increased volatility of international financial markets. On top of this, there is a structural weakening of international trade, aggravated by trade tensions between the United States and China.
The economic growth projection for Latin America and the Caribbean in 2019 is 1.7%, slightly below what ECLAC released last October (1.8%), while the estimate for the current year (2018) was also trimmed to 1.2% (from the 1.3% forecast in October).
The greatest risk to the region’s economic performance in the run-up to 2019 continues to be an abrupt deterioration in the financial conditions for emerging economies, the report adds. During 2018, emerging markets, including Latin America, showed a significant reduction in external financing flows, while at the same time sovereign risk levels increased and their currencies depreciated against the dollar. The text indicates that new episodes of deterioration in future financial conditions cannot be discounted, and that the consequences for countries will depend on how exposed they are in terms of their external financing needs and profiles.
“Public policies are needed to strengthen sources of growth and cope with the scenario of uncertainty at a global level,” Alicia Bárcena indicated. “The active role of fiscal policy in the region in terms of revenue and spending must be bolstered. In this sense, it is essential to reduce tax avoidance and evasion and illicit financial flows. At the same time, direct taxes and also health-related and green taxes must be strengthened. In terms of expenditures, in order to stabilize and invigorate growth, public investment must be reoriented toward projects that have an impact on sustainable development, with emphasis on public-private partnerships and on productive reconversion, new technologies and green investment. All of this while protecting social spending, above all in periods of economic deceleration, so that it is not affected by cutbacks,” the senior UN official added. Bárcena also warned that public debt profiles must be taken care of in light of the uncertainty that could increase their cost and levels.
As in previous years, in its Preliminary Overview of the Economies of Latin America and the Caribbean, ECLAC projects a growth dynamic with varying intensities between countries and subregions. This reflects not only the differentiated impacts of the international context on each economy, but also the dynamics of spending components – mainly consumption and investment – which have been following different patterns in economies of the north and of the south.
In this vein, it is forecast that Central America (excluding Mexico) will grow 3.3% in 2019, South America 1.4% and the Caribbean 2.1%. On a country level, the Caribbean island of Dominica is seen leading regional growth with a 9.0% expansion, followed by the Dominican Republic (5.7%), Panama (5.6%), Antigua and Barbuda (4.7%) and Guyana (4.6%). At the other extreme, Venezuela will suffer a -10% contraction in its economy, Nicaragua -2.0% and Argentina -1.8%. The region’s biggest economies, Brazil and Mexico, are seen growing 2.0% and 2.1%, respectively.
In its stocktaking of the current year, 2018, ECLAC’s report indicates that economic growth was led by domestic demand. Fixed investment showed a dynamic of recovery, while private consumption remained the main source of growth, even though its growth rates moderated since the second quarter of 2018.
In terms of fiscal policy, consolidation deepened in 2018 and the process of fiscal adjustment led to a reduction in the primary deficit (from 0.7% of GDP in 2017 to 0.6% of GDP in 2018), although this was accompanied by a small increase in public debt.