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Economic Outlook: Latin America

The outlook for Latin America is one of cautious optimism, with most economies expected to accelerate from their 2013 performances. This will be driven by a favourable global environment in which the US economy is forecast to grow above +3% in 2015.

Brazil, Mexico, Colombia, Peru, and Chile enjoy sound macroeconomic fundamentals, thanks to effective monetary management that has achieved low inflation. This is accompanied by flexible exchange rates acting as a buffer from external shocks.

Many Latin American countries also have good debt metrics and sizeable foreign exchange reserves that again shield them from external shocks and sudden capital outflows.

But the forecast is cautious because downside risks also exist, and are related to the need for structural reforms. Commodity prices and external demand no longer mask the corruption and red tape that discourage investment in Latin America.

Nevertheless, the region’s economic growth will pick up to between +3.6% and +3.8% in 2016 and beyond, while long-term prospects are also positive, with a few exceptions. After overcoming the 2008 to 2009 crisis, Latin American economies are well-positioned to continue on the path of moderate-to-strong growth, provided the rest of the world does not fall into recession again.

Within Latin America, Brazil dominates not just with size, but also near-term growth. The confluence of the World Cup, Olympic Games, and energy-related investments suggests growth above global averages for the next two years.

But as the impact of these mega events passes, construction growth will slow. Unless the country acts to adjust its Byzantine regulatory framework, it will lag global and regional performance in the long-term despite its advantages in natural resources and demographics.
Indeed, after 2015, slower growth in Brazil combined with the poor performance of Venezuela and the uneven growth of Argentina are expected hold the region back.