MercoPress. South Atlantic News Agency

ECLAC anticipates minus 1.9% contraction in economic activity this year in South America

The economies of South America—which are specialized in the production of commodities, especially oil and minerals, and have a growing degree of trade integration with China will record a contraction

Latin America and the Caribbean are forecast to have an average economic activity contraction of -0.6% during 2016, according to the latest release from the Economic Commission for Latin America and the Caribbean (ECLAC). This new estimate reflects that the contraction experienced by regional Gross Domestic Product (GDP) in 2015 (-0.5%) will extend to the current year.

 The new projections are evidence of the difficult global scenario with continued low growth in developed countries and a significant deceleration in emerging economies (China in particular), increasing volatility and costs in financial markets, and low prices for commodities— especially hydrocarbons and minerals. In addition, there is greater weakness in region’s countries domestic demand, with the decline in domestic investment accompanied by a deceleration of consumption.

As in 2015, during 2016 the growth dynamic shows marked differences between countries and sub regions, ECLAC says. The economies of South America—which are specialized in the production of commodities, especially oil and minerals, and have a growing degree of trade integration with China—will record a contraction of -1.9%.

Meanwhile, the growth rate for Central American economies is forecast at 3.9%, below the figure registered in 2015 (4.3%). If Central America and Mexico are taken together, projections for 2016 are 2.6%, below the 2.9% reached in 2015. For the English- or Dutch-speaking Caribbean, estimated growth will be around 0.9% in 2016.

This new scenario for the economies of northern Latin America and the Caribbean reflects a weaker-than-expected recovery in the United States and shows the effects of fiscal policy adjustments that have been adopted in some economies of this sub-region, points out ECLAC.

The organization says that ending this phase of deceleration and invigorating growth in the current situation entails a series of challenges for the region’s economies. On the one hand, it is essential to stimulate investment and increase productivity to resume a path of sustained and sustainable growth in the long term.

Additionally, efforts should be made to protect the social gains achieved in recent years and avoid rollbacks in the face of a lower economic growth scenario. In this context, the organization indicates that countries need policies that sustain social and productive investment in the framework of smart fiscal adjustments. ECLAC says it is necessary to attain sustainability in the region’s public finances, with policies that take into account the impact on growth capacity in the long term as well as the social conditions of the region's inhabitants.