After two consecutive years of economic contraction, Latin America and the Caribbean will experience a modest growth of 1.3% in 2017, according to new projections released today by ECLAC.
The United Nations regional organization made public its annual Preliminary Overview of the Economies of Latin America and Caribbean 2016, in which it calls for revived public-private investment in order to resume short- and long-term growth and confront the risks and growing uncertainties posed by the international scenario.
“We are at a turning point. Latin America and the Caribbean will resume growth but moderately and without clear engines driving it. Its recovery will be fragile as long as the uncertainties of the economic context continue, particularly the recently observed protectionist trends. For this reason, resuming the path of regional growth requires much caution and a reversal of the investment process dynamic, which will demand a significant mobilization of financial resources,” stated Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC) during a press conference in Santiago, Chile, where the document was presented.
According to the report, the region will close out 2016 with an average contraction of 1.1%. South America will be the sub-region most affected, with a decline of -2.4%, while the Caribbean will contract by 1.7% and Central America will have positive growth of 3.6%.
The Preliminary Overview adds that urban unemployment rate shows an upward trend and could end 2016 at 9% – much higher than the 7.4% recorded in 2015 – due to a decline in the employment rate and an increase in the labor force participation rate. Inflation, meanwhile, shows different levels among the sub-regions. In South America, it went from 9.2% in September 2015 to 10.9% for the same month in 2016, while accumulated inflation (over 12 months) for the economies of Central America and Mexico (as a group) rose from 2.5% in September 2015 to 3.4% in September 2016.
With regard to growth projections for 2017, improved commodities prices would benefit the terms of trade for South America, which is forecast to resume growth with an increase in GDP of 0.9%, while the Caribbean is expected to grow by 1.3%, mainly due to tourism. Central America, meanwhile, is forecast to expand by 3.7%.
Greater external demand will benefit the region in general in 2017, in addition to a recovery of intra-regional trade due to improved performance by the southern economies. Nevertheless, the uncertainties of the international context will have differentiated effects on the individual countries and sub-regions of Latin America and the Caribbean, which will accentuate sub-regional differences based on the productive and trade orientation of their economies, according to the report.
Furthermore, while continued expansive monetary policy by the European Central Bank and the Bank of Japan is expected through the end of 2017, the normalization of interest rates in the United States could entail a readjustment in financial asset prices, financial volatility and increased financing costs for the region.
Given this scenario, ECLAC recommends that the countries of the region continue fostering investment through countercyclical economic policies, with productivity gains in addition to active fiscal measures and smart adjustments. The organization also calls for reducing tax evasion and avoidance (which totals 6.7% of regional GDP), safeguarding public spending, revising subsidy structures (especially for fuel) and incentives, and reorienting measures to promote investment and essential social spending. “The challenge of the big environmental push proposed by ECLAC lays the strategic framework for investment opportunities and innovation,” underlines the report.