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From Volatility to Viability: Latin America Stabilizes Even as Growth Slows
Suffering through a five-year economic decline, Latin America is ripe for pervasive and lasting change. Key economic indicators are not all bad, however, as some countries shine while others sink. Innovation, diversification, and education are the keys to increased productivity and more foreign investment.
According to the International Monetary Fund (IMF), growth in Latin America has declined for the fifth straight year. Although there are distinctions among the various regions and individual countries, the main factors for the sluggish Latin American economy are lowered commodity prices (driven largely by a decline in exports to China), a higher cost of external financing, less capital flowing into the region, a workforce deficient in many of the skills nec- essary for maximum productivity, and a lack of innovation. Critical to economic growth in the region will be a shift in how Latin America prepares its workforce, which includes significant changes in its educational system, and a new focus on research and development (R&D) expenditures to raise the level of innovation, which will improve external financing and capital inflow.
NEGATIVE NUMBERS PERSIST
When viewing performance across the globe, the Unit-
ed Nations Department for Economic and Social Affairs notes that “four fifths of the world’s economies have seen average growth in 2011–2014 that was lower than the average growth in 2004–2007.” Most of the world, including Latin America and the Caribbean (LAC), still has not fully recovered from the financial crisis of 2008, but there are signs of improvement, such as increased export activity in Mexico, rising consumer confidence in some South American countries, and positive foreign direct investment (FDI) into Central America.
After small increases in GDP over the first two quarters of 2016, Latin America’s economy shrank in the third quarter by an estimated 0.6 percent, due in large part to a contrac- tion in Brazil. Projections for 2016 show negative growth for Brazil and Venezuela, and near-zero growth for Argentina. On the bright side, Panama (at 6.2 percent), the Dominican Republic (at 4.7 percent), and Bolivia (at 4.5 percent) will exhibit above-average growth for the region.
Among other key economic indicators, unemployment across the region was slightly higher in 2015, at 6.2 percent, compared to 2014’s 6.0 percent. It is projected to remain
at roughly the same level for 2016. Consumer prices are skewed by runaway inflation in Venezuela, but inflation is generally low and stable. External current account deficits are increasing in commodity-producing countries, but net importers of oil are benefiting from low crude prices.
POLITICAL AND ECONOMIC STRIFE
Of the South American countries, the smaller economies
of Chile, Colombia, and Peru are expected to experience lowering commodities prices and declines in corporate in- vestment, but it is the larger countries of Brazil, Argentina, and Venezuela that are affecting the economic forecasts for Latin America. Brazil’s 2015 growth was estimated to be -1.30 percent by the World Bank due to decreased domestic demand. Private consumption in 2014 was the worst since 2008, a marker of declining consumer confidence, which may be worsened by the Brazilian government’s decision to
12 STRATEGY