After six years of growth deceleration, the Latin America and the Caribbean (LAC) region had resumed in 2017 what seemed to be a path of modest but increasing growth. Unfortunately, this much-anticipated path was not to be, as the region hit several bumps in the road. Now, the region has entered a new phase of weak economic performance.
The largest economies in the region face recession, macroeconomic turbulence, or growth deceleration. For example, the Argentinian recession will become deeper before the economy starts recovering, and Mexico’s deceleration is expected to continue. However, recent data for Colombia indicates a gradually building expansion.
Growth in Latin America and the Caribbean is expected to be subdued in 2019, at 1.7 percent, reflecting challenging conditions in several of the largest economies. Gradually building momentum in Brazil and a recovery in Argentina are projected to contribute to a pickup in regional growth to 2.5 percent in 2020 and 2.7 percent in 2021. Growth in Central America is projected to accelerate moderately in the forecast period as the subregion moves past a difficult 2018. In the Caribbean, growth is projected to slow to 3.4 percent in 2019, from 4.3 percent in 2018.
The region’s main challenges include a mixed growth picture accompanied by a complex macro and external environment in several countries , and unprecedented flows of intra-regional migration. We are seeing large flows of migration from both Venezuela and Central America. With growth slowing, many of those who escaped poverty are at risk of slipping back.
Despite soft global trade, regional export growth has picked up, boosted by trade diversion in response to bilateral tariffs by the United States and China, and by solid growth in the United States. As these effects wane and global trade decelerates further, export growth in the region is projected to slow. Risks to the growth outlook remain tilted to the downside. Sharper-than-projected slowdowns in the United States and China could have negative spillovers on regional growth through trade, financial, and commodity market channels. Adverse market responses to weak fiscal conditions and disruptions from natural disasters are other important risks. ( Growth alone won’t be enough to continue recent social gains and the reduction of LAC’s persistent inequality. To do so, the region needs to invest in people, particularly the poor. LAC continues to underperform in education: around one out of every three youth doesn’t finish high school. Investment in education quality will play an important role in allowing the poor to contribute to and benefit from future economic growth.
Latin America and the Caribbean is extremely exposed and vulnerable to many natural disasters, such as earthquakes, floods that can ravage entire regions, and hurricanes that devastate Caribbean states. The region is among the most vulnerable due to high population density in the areas where these disasters strike and the need for better risk management practices. Fortunately, we are getting better at understanding and managing these risks. Examples supported by the Bank include the Pacific Alliance catastrophe bonds for earthquakes. In addition, risk sharing across countries through mechanisms such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) can provide readily-available funds for the recovery after a member country suffers a hurricane.
Last Updated: Oct 09, 2019