Latin America. A few days ago, the International Monetary Fund (IMF) presented its latest growth projections for the world economy. In its World Economic Outlook, it forecast that the growth rate of global economic activity would be 3.1% this year, down from the 3.3% projected three months ago.
In addition, in 2017 global GDP is expected to expand 3.5%, 0.1 percentage points lower than the previous forecast. These results, according to the IMF, are based on the slower pace of growth that China has been registering, and on the weakening of the recovery in advanced economies, which together negatively impact external demand, leading to commodity prices remaining relatively low compared to other years, which in turn affects the performance of emerging commodity-producing countries.
In addition, a series of impacts on financial markets, as a result of the massive outflow of capital in emerging economies, have been disrupting the price of assets in these countries, including the exchange rate. In particular, for Latin America and the Caribbean, it is estimated that GDP would accentuate its fall during 2016 to -0.5%, after falling -0.1% in 2015. For 2017, growth of 1.5% is projected. At first glance, and taking into account only the countries of South America and Mexico, it is observed that Peru will be the only nation that will accelerate its growth in 2016, as happened the previous year (along with Chile and Mexico). On the other hand, it is clear that the behavior of the region's economies will be heterogeneous, with some of them contracting significantly.
Brazil, for example, would report a 3.8% reduction in its GDP for the second year in a row. The growing political instability, added to the deterioration in its fiscal accounts and the lower contributions of raw materials, have been significantly impacting people's employment and income. In a similar situation is Venezuela, which has seen its economy collapse by -5.7% in 2015, and which would close 2016 with a fall of -8% and 2017 with -4.5%. The collapse of the price of oil has been fatal for the Venezuelan government, which added to the various distortions and imbalances introduced in its economy, have triggered one of the worst crises in that country.
Other oil-producing countries hit by the decline in the price of this raw material are Ecuador and Colombia. In the Ecuadorian case (which would contract 4.5% in 2016) there is an additional problem, linked to the use of the US dollar as the official currency. As is known, this currency has been becoming more expensive compared to Latin American currencies, which makes Ecuadorian exporters less competitive. As for Colombia, GDP would slow by 0.6 percentage points to 2.5% this year, mainly due to the fall in oil revenues, which have reduced the fiscal accounts.
On Argentina, the change of government has also meant a change of course in the economic policy of that country. The new administration has been applying a series of necessary adjustments, which would lead to the economy of that country being reduced by 1% this year, however for 2017 expectations are more encouraging and would lead to GDP recovering 2.8%. On the other hand, Chilean economic activity would also see a slower growth rate in 2016 (1.5% compared to 2.1% in 2015), affected by the low prices of copper, the country's main export product. In the case of Mexico, as the IMF report rightly mentions, economic growth will remain almost stable, thanks to the better performance of its main trading partner, the United States. The U.S. has managed to maintain its recovery unlike other advanced economies.
Peru, as we mentioned, will be the only country that will see its expansion accelerate this year. The main source of growth in the Peruvian economy will be the rebound in the mining sector, an activity that has been recovering since last year and that will compensate for the still weak performance of the sectors associated with domestic demand. Thus, GDP would go from 3.3% in 2015, to 3.7% in 2016 and 4.1% in 2017. However, the country with the highest growth in South America will be Bolivia, which will hold this position for the second consecutive year. This country is an important exporter of gas and other raw materials, however it has also increased public investment in strategic sectors, such as electricity (for export) seeking to promote productive diversification. In that sense, Bolivian GDP would grow 3.8% in 2016 and 3.5% in 2017.
It is also important to note that the projections presented by the IMF are subject to a baseline scenario, and that in case any risk factor emerges or worsens, the forecasts could have a downward bias. For Latin American countries, the source of risks comes mainly from two fronts: the first, associated with the landing of the Chinese economy; and the second, linked to the depreciation of local currencies.
