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Latin American Economy & Business - August 2014 (ISSN 1741-7430)

Region: ECLAC reduces growth forecast

In August the Economic Commission for Latin America and the Caribbean (ECLAC, also known under its Spanish acronym, CEPAL) became the latest multilateral institution to cut back its regional growth forecast.

The UN commission now says regional GDP growth this year will be only 2.2%, down from its earlier 2.7% projection, made in April, and down from the 2.5% result achieved in 2013. The ECLAC reduction had been preceded by a similar revision by the IMF, which in its World Economic Outlook, published in July, reduced its growth forecast for Latin America to 2.0%, down from its earlier forecast of 2.56% in April of this year. ECLAC attributed the change to weaker external demand, something of a slowdown in domestic consumption growth, insufficient investment, and a lack of new economic policy initiatives. For the region as a whole, ECLAC said the most important downside risk was slower growth in China. Key Latin American commodity exporters could suffer if the Chinese growth rate slips under 7%. On the plus side, however, some of the world’s other leading economic areas, such as the US (and to a lesser degree the European Union [EU]), seemed set to strengthen their recovery towards the end of this year, boosting demand for Latin American exports.

The various regional economies are showing quite wide variations in expected performance. The more pessimistic outlook for the region as a whole in part can be explained because some of the bigger economies are lagging behind the average. These include Brazil (only 1.4% growth predicted for this year), Argentina (0.2%), and Venezuela (-0.5%). Mexico, the number two economy, is expected to do a little (but not much) better than the average (+2.5%), as manufacturing exports to the recovering US economy begin to rise. The fastest-growing Latin American economies this year tend to be small- to medium-sized. The ranking is led by Panama (6.7%) and Bolivia (5.5%), followed by Colombia, the Dominican Republic, Ecuador and Nicaragua (all forecast to post annual GDP growth of 5.0%).

While noting the need for short-term business cycle management, ECLAC in its report stresses the importance of planning for the long term, investing in infrastructure, and raising productivity. “Macroeconomic policy must be reoriented, seeking to create the conditions for sustained growth and increased productivity. For that to happen, it is necessary to foster greater investment (public and private) in infrastructure and innovation and to boost the diversification of production,” the report said.

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