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

Miguel Máiquez, 21/03/2019

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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