As economic conditions in advanced economies improve in 2014 and beyond, the economic outlook is fairly upbeat for Latin America & the Caribbean (LAC). With growth strengthening steadily from 2.9 percent in 2014, to 3.2 in 2015 and 3.7 in 2016, the region’s expected average growth is up from last year’s modest 2.5 percent.
On the other hand, the continued decline in commodity prices threatens to reduce export revenues in 2014. Food and industrial metal prices have declined by 14 and 47.5 percent, respectively, since their 2011 peaks. What’s more, capital flows to the region are projected to decline by 3.7 percent in 2014 as a result of the U.S. Federal Reserve tapering its quantitative easing program since January 2014. This is likely to impact domestic demand and ease GDP growth.
Latin America’s economic powerhouses, Brazil and Mexico, are projected to grow 2.4 and 3.4 percent respectively. Mexico’s reform agenda has fueled investor optimism, leading to a gain of 1.8 percent on last year’s growth, whereas Brazil would be in the same position as last year.
The forecasted top growth performers for 2014 include Panama (7.3%) and Peru (5.5%). Elsewhere in the region, rates are expected to remain robust with many countries in Central America likely to grow between 3-5% in 2014.
Furthermore, regional exports are poised to grow from 4.0 percent in 2014 to 5.4 percent in 2016. For the first time, several countries are using exchange rates as shock absorbers and economic boosters. Depreciated currencies make the export and local industries more competitive and boost job creation.
Steady growth and sound economic policies improved the lives of millions in the region over the past decade. The poverty rate dropped from 42 percent in 2000 to 25 percent in 2012, while the ranks of the middle class increased from 22 to 34 percent in those same years. For the first time ever, the number of people belonging to the middle class now surpass the number of poor, a sign that Latin America and the Caribbean is progressing toward a middle-class region.
Despite progress in the past decade, inequality in the region remains high, and may be stagnating.