Subdued global trade, less supportive commodity markets, and domestic challenges curbed growth in 2013 in the Latin America and Caribbean region. Real GDP grew by 2.5 percent in 2013, broadly unchanged from 2012, but sharply below preceding years.
Consistent with the weakness in global demand during the year, growth in regional merchandise exports was subdued, growing by 4.1 percent for the months January to November, compared with 7.6 percent over the same period in 2012. In 2013, the prices of agriculture products, metals and precious metals (in U.S. dollars) fell 7.2, 5.5 and 16.9 percent, respectively. Given the commodity intensity of the region’s exports, these price declines have severely dented the region’s value of exports, leading the regional current account deficit (as a share of GDP) to widen from 1.7 percent in 2012 to 2.6 percent in 2013.
Despite a sharp drop off in June 2013 on the prospect of QE tapering, gross capital flows to the region increased for 2013 totaling $178 billion, compared with $150 billion in 2012. However, there was a significant decline in equity issues in the second half of the year. With the sell-off in emerging market assets following expectations of QE tapering in May, key regional currencies depreciated, losing 3 to 13 percent of their values and have since remained below their May 2013 levels. On the upside, the depreciated currencies have provided support to the recent strengthening of exports in some of the region's economies, notwithstanding softer commodity prices.
In addition to external challenges, domestic demand was also weak as growth moderated from cyclical highs. At the regional level, private and government consumption growth fell from being well over 3 percent in 2012 to 2.6 percent and 2.2 percent, respectively. This slowdown contributed to the dismal industrial production growth of a half percent for the first 10 months of 2013.