LATIN AMERICA AND THE CARIBBEAN WILL GROW JUST 0.5% IN 2015

Santiago, July 30, 2015.- The countries in Latin America and the Caribbean will grow 0.5% on average in 2015, according to new projections released by ECLAC during a press conference in Santiago, Chile. Although the deceleration is a generalized phenomenon in the region, the organization forecasts heterogeneous growth among subregions and countries; South America will contract -0.4%, Central America and Mexico will grow 2.8%, and the Caribbean will expand 1.7%.

On a national level, Panama will lead the regional expansion with a 6.0% increase, followed by Antigua and Barbuda (5.4%) and the Dominican Republic and Nicaragua (both with 4.8%). Mexico’s Gross Domestic Product (GDP) will grow 2.4% while Argentina’s will rise 0.7%. Brazil will experience a contraction of -1.5% while Venezuela will face an even greater decline of -5.5%.

Upon presenting its most recent annual report, the Economic Commission for Latin America and the Caribbean (ECLAC) called for vitalizing the investment process to resume growth and improve productivity in the region’s economies.

According to the Economic Survey of Latin America and the Caribbean 2015, the economic slowdown is due to external and domestic factors. In the external arena, the global economy’s slow growth during 2015 stands out, particularly the deceleration of China and other emerging economies, with the exception of India. The report indicates that global trade will remain stagnant as part of what has become a structural problem in the global economy; and in addition to less external demand, there is also a downward trend among prices for basic products as well as greater volatility and uncertainty in international financial markets.

On the domestic front, the report says that a contraction in investment along with the deceleration of consumption growth, coupled with other factors, are contributing to a reduction in domestic demand, which has been the main factor driving growth in recent years.

The decline in the investment rate and the lower contribution to growth of gross capital formation are worrisome, since they not only affect the economic cycle but also the capacity for growth and its quality in the medium and long term, ECLAC emphasizes. That is why one of the main challenges for resuming vigorous growth lies in vitalizing the process of gross capital formation, the document states.

“Revitalizing growth in the short and long term requires boosting public and private investment at a complex time. This can be done with fiscal rules that protect investment, resorting to public-private associations and new sources of financing, such as the investment and infrastructure banks of the BRICS countries, and alternative mechanisms such as green bonds and triangular loans cooperation,” said Alicia Bárcena, ECLAC’s Executive Secretary.

On labor matters, the Economic Survey signals that the lower growth will have a negative impact on employment. On average, the unemployment rate is forecast to rise in 2015 to around 6.5% of the population, from the 6.0% registered last year.

In its report, ECLAC stresses that the ability of countries in the region to accelerate economic growth will depend on the room they have to adopt countercyclical policies that especially stimulate investment, which will be key to reducing the effects of external shocks and thereby averting that these economies suffer negative consequences in the medium and long term.

The organization adds that investment does not only affect the pace and accumulation of capital, but it also relates directly to economies’ productivity. For that reason it is necessary to establish a framework of public policies that promote both public and private investment.

According to ECLAC, public investment can expand fiscal room for stimulating growth, without that necessarily implying an increase in countries’ debt levels. Furthermore, investment in infrastructure can be central to achieving sustainable development. Although this has increased in recent years, significant gaps persist.

In terms of private investment, ECLAC indicates that countries must improve small- and medium-sized enterprises’ (SMEs) access to productive financing while also orienting financial systems towards the productive sector and the long term. In addition, they should shore up their productive and territorial architecture with industrial policy investment instruments and technological innovation that go beyond tax incentive schemes.