Stable growth prospects for Latin America, but at a low level

In its latest forecasts, the International Monetary Fund is cautiously optimistic about the region’s economies. The country with the highest growth worldwide is located here.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

“Steady but slow” is the title of the International Monetary Fund’s latest “World Economic Outlook”.

This also describes the situation in Latin America: It will grow by two percent this year. That is less than in 2023 (2.3 percent). Next year, however, the economy in the region will grow by 2.5 percent, according to economists from Washington.

This means that Latin America is growing more slowly than the global economy as a whole this year (3.2 percent) and significantly less than the emerging markets as a whole (4.2 percent). Nevertheless, the forecast is positive for Latin America. With the exception of Argentina, all countries in the region are growing at the same rate.

The IMF’s forecast for Brazil this year is better than recently prognosed, with growth expected to reach 2.2 percent in 2024 instead of 1.7 percent. The forecasts for Peru (2.5 percent), Colombia (1.1 percent) and Uruguay (3.7 percent) have also improved. Chile is also expected to grow by two percent, significantly more than last year (0.2 percent).

Venezuela could lead growth in Latin America this year with four percent. It is followed by Paraguay (3.8 percent), Brazil, Chile, Bolivia (1.6 percent) and Ecuador (1 percent).

The IMF expects growth of 3.9 percent for Central America (2023: 4.2 percent). The economies in the Caribbean will pick up to 9.7 percent this year. This is mainly due to Guyana, which is likely to be the country with the highest growth rate in the world with an increase of 34 percent compared to 2023. Oil production has led to rapid growth there.

The outlook for Mexico has deteriorated: Latin America’s second-largest economy will grow by 2.4 percent – down from 3.2 percent in 2023. For next year, the fund has even lowered the outlook for Mexico to just 1.4 percent – despite the stable growth forecasts for the USA, Mexico’s most important trading partner. However, consumption in Mexico has been falling since the beginning of the year, investments are stagnating and exports are also shrinking.

Argentina has just begun a painful reform process under President Javier Milei. Fund economists expect a recession of 2.8 percent this year. Inflation could fall to 150 percent by the end of the year – but this is still extremely high.

The weak performance of Argentina, Latin America’s third-largest economy, is weighing on the economic outlook for the entire region. Brazil’s industrial exports to Argentina fell by almost 30 percent in the first two months of this year (compared to the same period last year).

Economic developments in the USA and China, the region’s largest economic partners, will be decisive for Latin America’s economies in the coming months. With weak growth of 0.8%, the EU zone will have little impact on the region.

High inflation and the Fed’s slower decline in interest rates have already led to a strengthening of the dollar. In Latin America, local currencies have been significantly weaker against the US currency for several days. This will increase inflation and foreign debt in the region.

As an exporter of raw materials and energy, developments in China are particularly crucial for South America. The signals from there are contradictory. The IMF expects growth of five percent, although this could fall to 4.6 percent next year.

growth
© Pixabay/eko pramono

More News from this category

There are still many democracies in Latin America, but their quality is declining
Onshoring works in Latin America, but not as expected
Will Milei live up to the high expectations?