Latin American economy will get better in 2019, but is still weak and vulnerable

Miguel Máiquez, 21/3/2019

Latin America’s econ­o­my will improve this year, but its growth is still weak and vul­ner­a­ble to the volatile glob­al sce­nario, accord­ing to the report The Latin Amer­i­can Eco­nom­ic Out­look 2019: Devel­op­ment in Tran­si­tion, pre­sent­ed on Wednes­day in Buenos Aires by the Unit­ed Nations Eco­nom­ic Com­mis­sion for Latin Amer­i­ca and the Caribbean (ECLAC –  CEPAL), CAF – Devel­op­ment Bank of Latin Amer­i­ca, and the Orga­ni­za­tion for Eco­nom­ic Coop­er­a­tion and Devel­op­ment (OECD), in coop­er­a­tion with the Euro­pean Commission.

«We con­tin­ue to face very strong tasks, such as access to cap­i­tal mar­kets and mea­ger growth. The region has not man­aged to take off yet,» said CEPAL Exec­u­tive Sec­re­tary, Ali­cia Bárce­na, when pre­sent­ing the report in the Argen­tine capital.

The con­clu­sions of this report are on the table of dis­cus­sions of the sec­ond Unit­ed Nations High Lev­el Con­fer­ence on South-South Coop­er­a­tion (PABA + 40), which began also this Wednes­day in Buenos Aires.

Accord­ing to CEPAL’s pro­jec­tions, Latin America’s gross domes­tic prod­uct (GDP) grew by 1.2% in 2018, slow­ing slight­ly com­pared to 1.3% in 2017, and is expect­ed to advance this year by 1.7%. But, despite that pre­dict­ed improve­ment, the report warns that growth «remains weak» and with very het­ero­ge­neous real­i­ties between countries.

Volatile global context

Accord­ing to the doc­u­ment, since 2011 GDP growth has been low­er than the rates reached in the mid-2000’s, and the cur­rent and expect­ed growth has been «insuf­fi­cient» to close the income gaps.

The region is also «vul­ner­a­ble» in a com­pli­cat­ed glob­al con­text: glob­al growth is expect­ed to expe­ri­ence a «soft land­ing» in 2019–2020, and glob­al trade will slow down fur­ther, with a decrease in com­mod­i­ty prices.

The exter­nal con­text, warns the report, is «volatile» and could include a glob­al finan­cial «hard­en­ing» and an increase in trade ten­sions between the Unit­ed States and Chi­na that could «derail» the eco­nom­ic recov­ery in Latin America.

«We fin­ished the tail­wind of the super-cycle of the com­modi­ties’ of 2014–2015 and, to grow back to the high­est rates, we need a reform agen­da that seeks to increase pro­duc­tiv­i­ty,» said Pablo San­guinet­ti, from CAF.

On the oth­er hand, «insuf­fi­cient» eco­nom­ic growth in Latin Amer­i­ca is hold­ing back the reduc­tion of pover­ty and inequal­i­ty, with pover­ty and indi­gence rates sim­i­lar to the ones reg­is­tered in 2016.

«Around 40% of Latin Amer­i­cans run the risk of falling back into pover­ty,» warned Neven Mim­ica, Euro­pean Com­mis­sion­er for Inter­na­tion­al Coop­er­a­tion and Devel­op­ment. «We have infor­mal jobs and poor social pro­tec­tion,» he added.

GDP growth in Latin Amer­i­ca and the Caribbean. Source: OCDE/CAF/CEPAL, IMF (2018), World Eco­nom­ic Out­look (April 2018, July 201 8update).

Four challenges

The report iden­ti­fies four «pit­falls» or «chal­lenges» of devel­op­ment that results from com­bin­ing the weak­ness­es of long data with new prob­lems, as coun­tries move for­ward in their respec­tive devel­op­ment paths.

The first one is social vul­ner­a­bil­i­ty. As Mim­ica high­li­ht­ed, 40% of Latin American’s pop­u­la­tion is cur­rent­ly at risk of falling back into pover­ty. This «vul­ner­a­ble mid­dle class» is caught in a vicious cycle of low-qual­i­ty jobs, poor skills and volatile income, accord­ing to the report.

The sec­ond one is low labour pro­duc­tiv­i­ty, with out­put per work­er remain­ing stuck at 40% of that of the Euro­pean Union for the last 30 years.

Low trust in insti­tu­tions is the third devel­op­ment trap. Around 64% of Latin-Amer­i­cans express no con­fi­dence in their own gov­ern­ment, more than 1/3 are not sat­is­fied with the edu­ca­tion avail­able in their coun­try and more than 1/2 are not hap­py with the health care they receive.

Final­ly, the region faces impor­tant envi­ron­men­tal threats. Latin Amer­i­ca, which holds 40% of the planet’s bio­di­ver­si­ty and has one of the world’s low­est eco­log­i­cal foot­prints, with­stands the worst of col­lec­tive glob­al inac­tion. The Caribbean’s expo­sure to surg­ing nat­ur­al dis­as­ters is, accord­ing to the report, a stark example.

«Inclusive multilateralism»

«Escap­ing those four traps demands vig­or­ous reforms. Stronger pub­lic capac­i­ties and pub­lic-pri­vate dia­logue are nec­es­sary to iden­ti­fy pol­i­cy pri­or­i­ties and co-ordi­nate across min­istries by adopt­ing and imple­ment­ing a new gen­er­a­tion of nation­al devel­op­ment plans”, said Ali­cia Bárcena.

The OECD Devel­op­ment Cen­tre, ECLAC, CAF and the EU call upon Latin Amer­i­can gov­ern­ments to «take a lead­ing role in pro­mot­ing a renewed and inclu­sive mul­ti­lat­er­al­ism that helps achieve the 2030 Agen­da for Sus­tain­able Development.»

«The region is fer­tile ground to shift to such a new inter­na­tion­al co-oper­a­tion par­a­digm in an effort to over­come the devel­op­ment traps it faces,” said Mario Pezzi­ni, Direc­tor of the OECD Devel­op­ment Cen­tre and Spe­cial Advi­sor of the OECD Sec­re­tary-Gen­er­al on Development.

Latin Amer­i­ca and the Caribbean «should be at the fore­front for rethink­ing inter­na­tion­al co-oper­a­tion,» accord­ing to the Latin Amer­i­can Eco­nom­ic Out­look (LEO) 2019.

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