Economic activity in Latin America and the Caribbean remains sluggish. The weak momentum shows negative surprises in the first fifty percent of 2019, elevated domestic policy doubt in a few large economies, heightened US-China trade tensions, and lower global development somewhat. Elevated policy uncertainty in some large economies of the region in addition has contributed to the weak growth momentum. Of this year largely reflects temporary factors Sluggish activity in the first half, including adverse weather conditions that reduced mining result in Chile and agricultural output in Paraguay. Mining activity in Brazil moderated following the Brumadinho Dam devastation, while growth in Mexico weakened due to an under execution of the budget, labor attacks, and gas shortages.
Elevated policy uncertainty in a few large economies of the spot has also contributed to the poor development momentum. In Brazil, concerns about the timing and scope of much-needed pension reforms-with a draft costs currently being discussed by Congress-has kept policy uncertainty above historical averages. Similarly, in Mexico, uncertainty remains high due to certain policy reversals, notably pertaining to energy and education reforms. There’s also continuing concerns about the financial health and prospects of Pemex. In Argentina, uncertainty has moderated, and more recently inflation has started to decline while economic activity rebounds. Weaker global growth and lingering US-China trade tensions also have hurt the Latin America region through their impact on commodity prices and exports.
Risks to the outlook remain tilted to the downside, including from a further escalation of US-China trade tensions, a slowdown in major economies, and tighter global financial conditions. The main domestic risks include a further rise in plan uncertainty, reversal of reforms, and natural disasters. Early this season Although profile flows were strong, they dropped in May-June and could drop if downside dangers were to materialize further.
Given weak growth potential clients and significant drawback risks, economic guidelines should hit a balance between assisting growth and rebuilding buffers. Fiscal consolidation remains important in many countries in the region given high public debt levels. This will lower growth likely, but its contractionary results can be mitigated by safeguarding open public investment and well-targeted sociable expenditures, while increasing revenue and trimming non-priority expenditure. Beyond policies to support a cyclical recovery, structural reforms remain an essential and have to be accelerated to boost potential development.
Such reforms should include opening the economies further to trade and foreign direct investment, an easing of regulations in labor and product markets, enhancing competition, and improving the quality of human and physical capital. In Argentina, the economy is recovering from last year’s recession gradually. GDP growth is projected to increase to -1.3 percent in 2019 and 1.1 percent in 2020 credited to a recovery in agricultural creation and a continuous rebuilding of consumer purchasing power, following razor-sharp compression of real wages last year.
Inflation is likely to continue steadily to fall. In Brazil, development is expected to stay subdued at 0.8 percent in 2019 and to accelerate to 2.4 percent in 2020, presuming a solid pension reform is approved, self-confidence profits, investment recovers, and financial plan remains accommodative. As well as the successful authorization of pension reform, a continued reduction in the budget deficit over the coming years remains crucial to ensure public personal debt sustainability. To boost potential growth, Brazil needs decisive structural reforms, including taxes reform, privatization, trade liberalization, and steps to improve the efficiency of financial intermediation.
In Chile, development is projected to remain sturdy at 3.2 percent in 2019 and 3.4 percent in 2020, helped by an expansionary monetary policy position and the announced acceleration of investment tasks. However, the balance of dangers remains tilted to the downside, especially in light of the recent weak data on economic activity and export performance.
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The gradual convergence of inflation toward the central bank’s target should be facilitated by the recent financial policy easing, while fiscal policy is expected to remain led by the specialists’ structural balance focus on. Considering high global uncertainty, reaching an easy agreement over the pending plan reforms shall be essential to support domestic self-confidence.
In Colombia, the recovery is projected to continue in 2019 despite exterior headwinds. In Peru, growth down was revised, albeit modestly, to 3.7 percent in 2019 due to a vulnerable outturn in the first quarter. Downside risks remain prominent, including lower product prices, continued trade tensions, and low execution of open public investment.
Growth is projected to stabilize at around 4.0 percent in the medium term, with solid private domestic demand offsetting a progressive fiscal consolidation. Headline inflation is likely to stay within the central bank’s target range of 1-3 percent. In Venezuela, the humanitarian and financial crisis continues to worsen. Real GDP is projected to fall by 35 percent in 2019, bringing the estimated cumulative decline since 2013 to over 60 percent.