Published On: Wed, Aug 29th, 2018

Economies of Latin America and the Caribbean to expand 1.5 per cent despite external uncertainties, says ECLAC

MEXICO CITY - In an international context marked by uncertainty and volatility, the economies of Latin America and the Caribbean will grow 1.5 per cent on average in 2018, thanks to a rebound in domestic demand, private consumption especially, and a slight increase in investment, the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) has indicated in a new annual report.

According to the ‘Economic Survey of Latin America and the Caribbean 2018’, which was released during a press conference at ECLAC’s Subregional Headquarters in Mexico yesterday, overall average growth in the region maintains a positive trend, despite showing signs of slowing.

The projected performances among the various countries and subregions are mixed, with South America expected to grow 1.2 per cent in 2018, while Central America will notch 3.4 per cent growth and the Caribbean 1.7 per cent.

The Dominican Republic and Panama will lead the region’s growth, with increases in Gross Domestic Product (GDP) of 5.4 per cent and 5.2 per cent, respectively, followed by Paraguay (4.4 per cent), Bolivia (4.3 per cent), Antigua and Barbuda (4.2 per cent), and Chile and Honduras (both with 3.9 per cent).

The Economic Survey adds that this regional growth is occurring in a complex global scenario, characterized by 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 dollar; and a global economic expansion that is tending to lose momentum.

The report indicates that Latin America’s tax collection will hold steady in 2018 at around 17.8 per cent of GDP (versus the 17.9 per cent recorded in 2017), while average inflation will remain within expected values (6.5 per cent to June versus the 5.3 per cent seen in 2017, excluding Venezuela). Meanwhile, the regional urban unemployment rate has stopped growing and is forecast at 9.2 per cent, just below the 9.3 per cent seen last year, thanks to greater creation of salaried employment (1.4 per cent in the first quarter of 2018, after totaling 0.3 per cent in 2017).

In the fiscal arena, measures aimed at fiscal consolidation in Latin America have brought about an expected reduction in the primary deficit, which is forecast to narrow from an average deficit of 0.8 per cent of GDP in 2017 to one of 0.5 per cent of GDP in 2018.

“Our region continues to grow, although at a slower pace than what was projected several months ago, despite international turbulence. That is positive but it demands that we redouble our efforts to prompt a reactivation, without resorting to excessive fiscal adjustments. Regional integration can play an important role here, and we must aim in that direction,” said ECLAC’s Executive Secretary, Alicia Bárcena.

In this latest edition of the report, ECLAC indicated that the region has increased its investment levels in the last two decades, closing the existing gap with other regions of the world. It warns, however, that additional efforts are needed to promote the productive linkages of this investment and thereby bolster economic growth.

Meanwhile, private investment levels surpassed those of public investment in 2017, with 80.3 per cent versus 19.7 per cent of participation, respectively. For that reason, “it is necessary to have a strategic vision regarding public investment, since it plays an important role in boosting private investment, producing a crowding-in effect (attraction toward the private sector), as well as in the provision of central public goods to drive growth,” Bárcena indicated.

“The region has made significant efforts to increase investment flows, but we face the challenge of improving its sectoral composition to incentivize our economies’ productivity. There is still much to be done,” she stressed.

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