RIGHT OF CENTRE: Caribbean expected to pick up
Economic growth in Latin America and the Caribbean region slowed sharply in 2012, making the region the second slowest performer after developing Europe and Central Asia, among all developing regions of the world.
A weak external environment and a contraction in domestic demand were largely responsible for tepid regional gross domestic product (GDP) growth estimated at three per cent in 2012 (4.3 per cent in 2011).
Growth in Brazil, the region’s largest economy, decelerated markedly to an estimated 0.9 per cent in 2012 from an already modest 2.7 per cent in 2011, while Argentina’s economic growth contracted to two per cent from 8.9 per cent the previous year.
The slowdown was modest in Central America and the Caribbean.
Growth was relatively buoyant, albeit weaker than 2011.
Economic activity in the region provided a mixed picture in 2012. Industrial production slowed, though not uniformly, in the first half of the year but rebounded in the third quarter of 2012 with signs of weakness reappearing in the fourth quarter.
Growth of remittances decelerated due to weak labour market conditions in the main migrant destinations of the United States and Europe, while the region received the largest share of gross capital flows (international bond issuance, cross-border syndicated bank loans, and equity placements) to developing countries, accounting for 33 per cent of the US$412 billion global gross capital flows in the first ten months of 2012.
Regional growth is expected to accelerate to 3.5 per cent in 2013 and average about 3.9 per cent over the 2014-2015 period, mainly due to a more accommodative policy environment in some of the larger economies in the region, supported by stronger external demand and robust domestic demand.
Growth in Brazil is forecast to accelerate to 3.4 per cent in 2013, boosted by accommodative monetary and fiscal policies whose full effects are yet to be felt. Growth in Mexico is forecast to slow to 3.3 per cent in 2013.
Energy exporters Bolivia, Venezuela and Ecuador will see growth slow, as will Central America.
The Caribbean will strengthen slightly, mostly on account of the Dominican Republic.
Risks and vulnerabilities
The region remains vulnerable to an uncertain external environment, increased exposure to East Asia, and to country-specific factors in the
euro area and fiscal paralysis in the United States. Should either of these scenarios materialize, the ensuing weak global demand and demand for commodities would negatively impact commodity prices, incomes, fiscal balances and GDP growth in the region, in particular for commodity-exporting countries. Countries with fewer macroeconomic buffers could be particularly vulnerable in case of a significant weakening in global demand.
Looking East – as the region, notably South America, is becoming increasingly reliant on exports to East Asia, particularly China, the risk of a stronger-than-expected deceleration in China is a downside risk for commodity-exporting countries in particular.
Domestic imbalances and/or policy errors could also be detrimental to growth in selected economies in the region. In Caribbean countries, with weak financial systems, a sharp slowdown in growth would result in a marked deterioration in credit quality that could further impair growth.
In the short run, a possible return of hot money may complicate policymaking in financially integrated economies in the region, resulting in currency appreciations. Over the medium term, however, expectations of costlier capital could limit investment and growth.
• The World Bank Global Economic Report – Latin America and the Caribbean.