MercoPress. South Atlantic News Agency

Latam and Caribbean forecasted to expand 2.7% on average this year

China and lower commodities' prices will have an impact

Latin American and Caribbean countries are estimated to grow an average 2.7% in 2014 as the region's main economies have limited dynamism according to ECLAC's Updated Economic Review of Latam and the Caribbean 2013, released on Tuesday.

 The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) says that 2014 regional growth rate would be slightly higher than 2013 (2.5%), but lower than the rate forecast in December (3.2%), because of an external context still marked by uncertainty and lower growth than expected for the region's larger economies, Brazil and Mexico, which will expand by 2.3% and 3%, respectively.

Likewise economic growth estimate was reduced for Argentina (1%), a country that took several steps in early 2014 to counter imbalances of recent years, causing the economy to contract. Equally the impact of Venezuela's complex economic situation will result in a contraction of -0.5% of that nation's activity.

Nevertheless an overall heterogeneous performance is forecasted since Panama, Bolivia, Peru, Ecuador, Nicaragua and the Dominican Republic will expand 5% or higher, while a significant number of nations will expand between 3% and 5%.

The report says activity indicators for developed countries -especially the United States, United Kingdom, Korea, Germany and several others from the Euro zone- are showing a recovery. But the situation in China, one of the region's main trade partners, is not encouraging with a minimum growth goal of 7% for this year.

In addition, the demand for commodities is forecast to remain limited, especially mining and food products, which, combined with currency appreciation in developed countries, would cause commodity prices to drop modestly. The decrease would affect commodities exporting economies like those of South America.

ECLAC's document points out that the United States' recovery will have a positive impact on the economies of its closest neighbors, especially Mexico and Central America, considering its importance as a trade partner. At the same time, the upturn of developed countries will benefit the Caribbean nations, more specialized in service exports, due to better performance by the tourism sector.

Prospects for the year show a global scenario with lower liquidity, which entails important challenges in matters of macroeconomic policy and external financing for the Latin America and the Caribbean region, the report expresses.

In terms of inflation, while there are no sharp changes expected, a rise in the regional average is forecast due to the indexing changes in Argentina (and Venezuela's situation) and the moderate rise in several countries' prices, but nevertheless inflation will remain between 3% and 6%. This has become evident during the first two months of 2014, when average accumulated regional inflation over twelve months rose to 7.6% compared to 7.3% last December.

In this context of modest regional economic growth, there will not be a meaningful recovery of employment levels. ECLAC emphasizes this could translate into an increase in unemployment rate -which in 2013 registered a new minimum of 6.2%- only if the drop in labor force participation seen last year is reverted.