MercoPress. South Atlantic News Agency

Latam and Caribbean poised to grow 3% this year; poor performance from Brazil and Mexico

ECLAC Executive Secretary Bárcena said the current situation highlights problems of growth sustainability in most of the region

Latinamerica and the Caribbean are poised to grow 3% this year, according to the July Economic Survey of Latin America and the Caribbean, which is down from the previous April estimate of 3.5%. Slower growth in the region’s two largest economies Brazil and Mexico, and more modest activity in Chile, Panama and Peru have pulled the average down.

The report from the Economic Commission for Latin America and the Caribbean, ECLAC, made public on Wednesday in Santiago de Chile warns about the current external negative environment that could have an impact in the short and long term given some weaknesses of the region.

Among them the high dependency on exports to Europe and China; a growing current account deficit (reaching 2.0% of GDP in 2013, which is the highest level since 2001), major fiscal constraints in the Caribbean, Central America and Mexico, and overall South American vulnerability because of its dependence on natural resources.

Furthermore, economic growth remains largely dependent on consumption, which in 2013 has expanded less than in the previous year. Likewise this year’s contribution of investment to GDP will be modest, and net exports will have a negative contribution as imports soar faster than exports. Overseas sales were down in the first half of 2013, and are probably announcing the end of the boom period for commodity prices.

According to ECLAC Executive Secretary Alicia Bárcena “the current situation highlights problems of growth sustainability in most of the region's economies, hence the need to broaden and diversify sources of growth. We also need a social understanding to increase investment and productivity, as well as changing production patterns to grow with equality”.

The region's moderate economic performance is linked to estimated world economic growth of 2.3% (which is a similar rate to 2012). Owing to the ongoing recession in the Euro zone during 2013, developing countries are expected to remain the drivers of world economic growth (although policies adopted by the US and Japan are expected to boost these economies and promote greater worldwide economic growth in the coming year).

According to ECLAC estimates, Paraguay leads growth in 2013, with a 12.5% rise in GDP, followed by Panama (7.5%), Peru (5.9%), Bolivia (5.5%), Nicaragua (5.0%) and Chile (4.6%). Argentina is expected to grow by 3.5%, Brazil by 2.5% and Mexico by 2.8%.

Central America should grow by 4.0%, while South America is expected to grow by 3.1%. The Caribbean is expected to maintain the slow upward trend in growth observed in previous years to reach 2.0%.

In the first six months of 2013, prices for many of the region's exports dropped, particularly minerals, metals, oil and some foodstuffs. This trend is associated with the Euro zone recession and the slowdown of growth in China.

In 2013, export values are expected to rise by around 4.0%, which is higher than the 1.5% growth recorded in 2012 but much lower than the rates above 20% observed in 2011 and 2010. Imports are expected to grow by 6.0% in 2013 (compared with a rise of 4.3% in 2012).
As a result of the region's moderate economic growth, labour demand is not expected to rise significantly in 2013. Unemployment dipped from 6.9% to 6.7% in the first quarter of 2013, while 12-month cumulative regional inflation to May 2013 stood at 6.0%, compared with 5.5% in December 2012 and 5.8% in the 12 months to May 2012.

Finally the economic report states that the region has experienced profound economic transformations but levels of inequality and poverty remain high in many countries. Despite the positive terms of trade, capital accumulation has been insufficient and there have been limited gains in labour productivity.