LAC expected to post modest economic rebound in 2019

Tuesday, January 22, 2019

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New York, 21 January - The global economy will continue to grow at a steady pace of around 3 percent in 2019 and 2020 amid signs that global growth has peaked. However, a worrisome combination of development challenges could further undermine growth, according to the United Nations World Economic Situation and Prospects (WESP) 2019, which was launched today.

UN Secretary-General António Guterres cautioned "While global economic indicators remain largely favourable, they do not tell the whole story." He said the World Economic Situation and Prospects 2019 "raises concerns over the sustainability of global economic growth in the face of rising financial, social and environmental challenges."

Growth prospects for Latin America and the Caribbean

Amid a challenging external environment, Latin America and the Caribbean are expected to have a modest pick-up in growth in 2019-2020. This after a poor performance in 2018, in which the weaknesses of several of the major economies (including those of Argentina, Brazil and Venezuela) affected the growth of the region. Aggregate GDP is expected to increase by 1.7% in 2019 and 2.3% in 2020, compared to the 1.0% estimated in 2018.

In per capita figures, the region's annual GDP stagnated last year. This means that the average GDP per capita has not grown in five consecutive years, which highlights the difficulty the region faces in returning to a path of steady growth after the collapse of commodity prices. Although the low performance of aggregate growth reflects a high level of vulnerability to external and national impacts in some parts of the region, it is also indicative of a prolonged and entrenched deficit in productivity. The prolonged period of slow economic growth in the region hinders progress towards the achievement of many of the United Nations Sustainable Development Goals. This is evident in the recent increase in the number of people living in poverty.

Presumably, the recovery of the region will be driven by the strengthening of economic activity in South America. Although the outlook for Argentina and Brazil remains challenging, the economic conditions of these two countries are expected to improve gradually over the next two years. In other countries of the subregion, including Bolivia, Chile, Colombia, Paraguay and Peru, growth prospects remain favorable around solid macroeconomic fundamentals and firm demand from the private sector.

Mexico and Central America are expected to maintain moderate and moderate average growth in 2019 and 2020. The subregion continues to benefit from the solid performance of the US economy. However, in many countries, economic activity is hampered by political uncertainty and structural barriers. Likewise, the great differences between countries at the individual level are maintained. While prospects remain positive in the Dominican Republic and Panama, expectations are unfavorable in other countries, especially in Cuba, El Salvador, Haiti and Nicaragua.

In the Caribbean, there was a moderate economic recovery in 2018 thanks to the positive growth registered by Suriname and Trinidad and Tobago, motivated by a higher level of income from basic products. The average growth of the subregion will remain unfavorable in 2019-2020, with several serious obstacles to development, such as high debt levels, significant infrastructure deficits and high unemployment rates, especially among young people.

Risks and political challenges

The global economy faces a confluence of risks that have the potential to seriously alter economic activity and inflict considerable damage on long-term development prospects. Among these risks are: the dwindling support for multilateralism; the increase in conflicts in commercial policies; financial instability linked to high levels of debt; and the increase in climate risks as the world experiences an increasing number of extreme weather events.

In Latin America and the Caribbean there are significant downside risks in the economic outlook. A drastic tightening of global economic conditions could result in significant outflows of capital from the region (especially in South America), which could potentially hinder investment prospects and hamper economic recovery. Other risks are linked to a potential slowdown in the US economy, which would affect the economies of Mexico, Central America and the Caribbean to a greater extent, and a further drop in the price of oil and metals. The economic prospects of the region are also hampered by the limited options available to countries in terms of countercyclical fiscal and monetary policies.

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