An Inter American Development Bank 2017 Macroeconomic report has found that the economic outlook for the Caribbean and Latin America is improving.
The report said the economies of both regions are being driven by a stronger global economy, improved fiscal positions, lower inflationary pressures, and better prospects for Argentina and Brazil.
The first part of the report Routes to Growth in a New Trade World was released on the side of the IDB’s Annual Meeting taking place in Asunción, Paraguay. The second part, on regional integration, will be unveiled on Sunday, April 2.
“Since our report last year there have been several positive developments as the region shifts to a pattern of better policies. Tax reform efforts in some countries have been successful in achieving more equity while improving efficiency. Monetary policies in larger economies have kept inflation in check and we estimate the external adjustment process is close to completion in most countries,” said IDB Chief Economist José Juan Ruiz.
However, the combination of potential negative U.S. trade and financial shocks, even with the U.S. economy growing, could trim a full 0.4% from the region’s projected 2% annual growth rate for the 2017-2019 period. The report uses the IMF’s three-year projections as a baseline and then estimates how external impacts could add or subtract to the region’s growth.
The shock from the U.S. economy is not evenly distributed. Mexico could see its three-year potential growth rate cut by 0.8%, reducing its annual rate from 2.2% to 1.4%. The Southern Cone and the Andean region would each see their GDP annual growth rate reduced by 0.4%. The shocks would be transmitted through a combination of interest rate hikes, global trade frictions and impacts on commodity prices.
At the same time, the performance of both Argentina and Brazil have a big impact on the region. Given the inter-connectedness of these economies, a $20 billion combined gain or loss in GDP of South America’s biggest economies would add or cut about $70 billion of GDP to the entire region for the three-year period.
An examination of the fiscal budgets of 22 countries estimates a primary fiscal deficit of 0.8% of GDP for the region, though there the reality varies from one country to another. Still, 15 countries in Latin America and the Caribbean that are pursuing plans for fiscal consolidation are aiming to achieve an adjustment of about 2% of GDP over 5 years. Tax reforms could increase fiscal revenues by 1.2% of GDP. Expenditures are expected to be trimmed by 0.8%.
