Latin America’s economic growth is set to come in lower than expected this year as US protectionism and widespread wariness of emerging markets put a drag on the region, a UN panel said on Thursday.
The Economic Commission for Latin America and the Caribbean (ECLAC) slashed its growth forecast for the region by 0.7 percentage point to 1.5 percent, saying that the “complex global scenario” had dimmed the outlook since its last report in April.
It has been a tough year for emerging markets across the board, with global trade tensions taking their toll and the strong US dollar battering many currencies and bonds — notably in Argentina and Turkey, which have faced full-blown currency crises.
ECLAC cited a laundry list of problems slowing Latin America’s economies, including: “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 [US] dollar”; and “a global economic expansion that is tending to lose momentum.”
Latin America’s economies posted solid growth of 6.2 percent in 2010, but then tipped into a two-year regional recession in 2015. The region’s GDP returned to growth of 1.2 percent last year, but now its tepid recovery is in jeopardy.
Some Latin American countries have found themselves in US President Donald Trump’s line of fire.
The most notable case is Mexico, which sends about 80 percent of its exports to the US under the North American Free Trade Agreement. Trump has insisted on renegotiating that deal and threatened to scrap it altogether.
Trump has hit Brazil, Mexico and Argentina with steel and aluminum tariffs or quotas, along with the EU, Canada and other countries. The region has also suffered the indirect effects of a global economic climate “marked by uncertainty and volatility,” ECLAC said.
Ironically, Latin America’s fundamentals remain relatively solid.
ECLAC forecast that the region-wide primary deficit would fall to 0.5 percent of GDP this year and average inflation would remain within the expected range at 6.5 percent to June — excluding regional basket case Venezuela.
However, the outlook is uneven across the region, said ECLAC Executive Secretary Alicia Barcena, who presented the report in Mexico City.
“Mexico and Central America are doing better than South America in 2018,” she said.
Brazil, the region’s largest economy, will grow 1.6 percent this year, up from 1 percent last year, ECLAC predicted.
Mexico, the second-largest, will grow 2.2 percent, up from 2 percent last year.
Meanwhile Argentina, the third-largest, is facing a contraction of 0.3 percent, down from 2.9 percent growth last year.
Oil giant Venezuela, which is plunged in a political and economic crisis, is facing a contraction of 12 percent, after shrinking 13 percent last year, ECLAC said.
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