fbpx

Could 2019 be a 'lost year' for the Latin American economy?

Listen this article


2019 seems to have brought Latin America a slowdown in all economic fronts. What causes this fall in the performance of the regional economy?

Could 2019 be a 'lost year' for the Latin American economy?

In the last years, Latin America has maintained steady economic growth. However, the region is expected to grow less in comparison to the previous years, due to the volatility in the financial markets and the weakening of the world economy due to the reduced growth of commercial powers such as the US and China.

Leer en español: ¿Podría el 2019 ser un 'año perdido' para la economía latinoamericana?

Also, the intensification of global financial conditions and the fall in prices of raw materials have generated economic tensions between China and the United States that favor the economic slowdown in the region. It is for this reason that Latin America is expected to grow by 2% in 2019 and 2.5% in 2020, rates much lower than that of other regions in the international market.

On the other hand, the countries that lead the economic growth of the region will be Peru, Chile, Colombia, and Paraguay with an increase in GDP of around 3.5%, followed by Brazil, Mexico, and Uruguay with a regular growth of 2% and Argentina whose economy would fall 1% this year.

The United States and China in 2019

Now, world growth is currently stable. However, there were downward movements in the last quarter of 2018 due to the adjustment in international trade. A sample of this is the United States, which has a low economic dynamism and is a leading partner in Latin America. According to BBVA Research, it is estimated that the US will reduce its growth to 2.5% in 2019 and 2.0% in 2020, possibly facing a further deterioration in its economy, if they continue with fiscal disincentive policies and do not improve their commercial system.

On the other hand, China, another fundamental partner in the region that directly affects Latin American growth, would face a slowdown in its economy. In 2018 it grew by 6.6%, and it is expected that by 2019 it will be reduced to 6% and by 2020 to 5.8%. This opens several questions about whether the Chinese government will promote or take the necessary monetary or fiscal measures to mitigate the economic slowdown that is forecast, and thus recover the proper levels of growth that this economic power always shows.

What factors affect the slowdown for Latin America?

The price of raw materials is one of the most important factors that can affect the growth performance of Latin America. Essential products for the region such as oil, soybean, and copper directly depend on the high or low level of demand in international trade.

According to BBVA Research, oil prices will tend to fall for two reasons, the first for the increase in oil production by the US and the second for a global demand for fuel lower than usual, which will lead to the reduction of its price from 71.95 dollars per barrel in 2018 to 63.15 dollars by 2019 and 55.75 dollars by 2020. Undoubtedly, this drop in prices would affect oil-exporting economies in the region such as Mexico and Colombia.

On the other hand, the price of copper will remain relatively, and its price will go from 2.96 dollars per pound in 2018 to 2.81 for 2019 and 2.72 for 2020. Copper is one of the main export products of Chile and Peru, these countries being the possible affected ones with low demand for this raw material.

Regarding soybean, an important product in international trade for Argentina, a slight increase in its price is foreseen because of the prospects of distension between the US and China. According to BBVA Research, the cost would increase from 342.50 dollars per ton in 2018 to 340.50 in 2019 and 350.50 in 2020.

Read also: This is how 2019 will be for commodities in Latin America

However, another of the important factors that will impact the economic growth of the region is the volatility of financial markets, because investors have adjusted their portfolios by leaving riskier assets looking for more stable funds, which fluctuate less and with more liquids Coupled with the above, the risk of tensions between the US and China in international markets is present. If this occurs, it will result in more tariff increases for protectionist measures, triggering negative impacts on the growth of the two leading Latin American partners.

Finally, this first half of 2019 is one of uncertainty due to financial tensions in international markets and the global slowdown. The prospects for growth in the region today are not the best, and according to the report of "Latin American Situation 2019" of BBVA Bank they went from 2.4% to 2.1% for 2019 and from 2.34% to 2.14% for 2020. The previous figures, show the importance of the US and Chinese economies in the global market and that significantly influence the growth of Latin America.

Likewise, the international market is expected to stabilize in the short term and show a more positive scenario than the current one, which relieves tensions in the commercial sphere between the United States and China. Distension between these powers will contribute to a better growth dynamic not only for Latin America but also to all international markets.

 

LatinAmerican Post | Camilo Salazar

Translated from "¿Podría el 2019 ser un 'año perdido' para la economía latinoamericana?"

We use cookies to improve our website. By continuing to use this website, you are giving consent to cookies being used. More details…