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Latin America and the Caribbean Holds to a Path of Moderate Growth and its Economy Will Expand 1.5% in 2018, Despite External Uncertainties

ECLAC released today its Economic Survey 2018, in which it offers a profound analysis of the evolution of investment in the region.

23 August 2018|Press Release

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ECLAC Executive Secretary, Alicia Bárcena (center) during the launch of the report held in Mexico City
ECLAC Executive Secretary, Alicia Bárcena (center) during the launch of the report held in Mexico City.
Photo: ECLAC

In an international context marked by uncertainty and volatility, the economies of Latin America and the Caribbean will grow 1.5% on average in 2018, thanks to a rebound in domestic demand, private consumption especially, and a slight increase in investment, ECLAC indicated in a new annual report.

The Economic Survey of Latin America and the Caribbean 2018 – one of the organization’s most traditional publications, issued uninterruptedly since the year of its founding (1948) – was released today during a press conference at ECLAC’s Subregional Headquarters in Mexico, in Mexico City, by its Executive Secretary, Alicia Bárcena.

According to the document, overall average growth in the region – the projection of which declined by seven-tenths versus the last estimate provided by the organization in April – maintains a positive trend, despite showing signs of slowing. As on previous occasions, there is great heterogeneity among the various countries and subregions, since South America is expected to grow 1.2% in 2018, while Central America will notch 3.4% growth and the Caribbean 1.7%. With regard to countries, the Dominican Republic and Panama will lead the region’s growth, with increases in Gross Domestic Product (GDP) of 5.4% and 5.2%, respectively, followed by Paraguay (4.4%), Bolivia (4.3%), Antigua and Barbuda (4.2%), and Chile and Honduras (both with 3.9%).

The Economic Survey adds that this regional growth is occurring in a complex global scenario, characterized by trade disputes between the United States, China and other nations; growing geopolitical risks; a decline in capital flows toward emerging markets in the last few months and a rise in sovereign risk levels; depreciations of local currencies against the dollar; and a global economic expansion that is tending to lose momentum.

The report indicates that Latin America’s tax collection will hold steady in 2018 at around 17.8% of GDP (versus the 17.9% recorded in 2017), while average inflation will remain within expected values (6.5% to June versus the 5.3% seen in 2017, excluding Venezuela). Meanwhile, the regional urban unemployment rate has stopped growing and is forecast at 9.2%, just below the 9.3% seen last year, thanks to greater creation of salaried employment (1.4% in the first quarter of 2018, after totaling 0.3% in 2017).

In the fiscal arena, measures aimed at fiscal consolidation in Latin America have brought about an expected reduction in the primary deficit, which is forecast to narrow from an average deficit of 0.8% of GDP in 2017 to one of 0.5% of GDP in 2018.

“Our region continues to grow, although at a slower pace than what was projected several months ago, despite international turbulence. That is positive but it demands that we redouble our efforts to prompt a reactivation, without resorting to excessive fiscal adjustments. Regional integration can play an important role here, and we must aim in that direction,” said the Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Bárcena.

In this edition, ECLAC’s report dedicates the majority of its chapters to a profound analysis of the evolution of investment in Latin America and the Caribbean between 1995 and 2017, with its stylized facts, main determinants and policy challenges. It indicates that the region has increased its investment levels in the last two decades, closing the existing gap with other regions of the world. It warns, however, that additional efforts are needed to promote the productive linkages of this investment and thereby bolster economic growth.

The Survey indicates that between 1995 and 2017, gross fixed capital formation (fixed investment) rose from 18.5% to 20.2% as a proportion of the region’s GDP, even though starting in 2012 investment momentum has tended to decelerate. This behavior reflects three economic cycles in this period: from 1995 to 2002, 2003 to 2008, and 2009 to 2017. The study adds that the construction sector had the greatest participation in investment in the time frame analyzed, with 67.5% of total investment. Nonetheless, machinery and equipment appear as the most dynamic component in that period, since investment in that area went from representing 4.7% of GDP in 1995-2003 to 8.1% in 2010-2016. “This is positive for the region, since it allows for incorporating greater technological content and laying the foundations for improving productivity and sustaining growth,” the report indicates.

Meanwhile, private investment levels surpassed those of public investment in 2017, with 80.3% versus 19.7% of participation, respectively. For that reason, “it is necessary to have a strategic vision regarding public investment, since it plays an important role in boosting private investment, producing a crowding-in effect (attraction toward the private sector), as well as in the provision of central public goods to drive growth,” Alicia Bárcena indicated.

“The region has made significant efforts to increase investment flows, but we face the challenge of improving its sectoral composition to incentivize our economies’ productivity. There is still much to be done,” the senior United Nations official stressed.