ECLAC holds its projection for average regional growth at 1.1% and stresses the importance of macroeconomic policies to regain economic dynamism.

(August 3, 2017) The countries of Latin America and the Caribbean will grow 1.1% on average in 2017 after two consecutive years of contraction, thanks to an international context that shows improved growth expectations despite geopolitical risks, and better prices for the commodities that the region exports, according to a new annual report that ECLAC presented today in Santiago, Chile.

The regional United Nations organization released its Economic Survey of Latin America and the Caribbean 2017, in which it underscores the importance of macroeconomic policies to invigorate long-term growth and move toward the necessary structural change in the region’s economies.

“To resume medium- and long-term growth, countercyclical policies are needed that not only focus on reducing the cycle’s fluctuations, but also on modifying those specific characteristics that negatively influence growth and the productive structure of countries in the region. This means moving toward countercyclical frameworks for fiscal policy that defend and promote public and private investment. This involves revising fiscal rules so they continue to serve as pro-stability instruments, but also as pro-investment. This fiscal framework must be accompanied by a financial policy aimed at credit stabilization and a monetary policy that supports investment growth and goes beyond instruments such as the interest rate,” Alicia Bárcena, the Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), said during the press conference where the document was presented.

It its main section, ECLAC’s Economic Survey of Latin America and the Caribbean analyzes the policy challenges to stimulating investment and growth. The organization indicates that in the process of achieving equilibrium in terms of indebtedness and the fiscal balance, public investment must not be neglected. In that sense, separating the handling of investment spending and current spending would help eliminate the bias against investment in processes of public spending adjustments.

It is also important to strengthen the ability to increase public revenue through changes in the tax structure (with the establishment of more direct taxes), fortifying tax administrations and reducing evasion and avoidance, the document adds.

According to the report, as in prior years, different growth dynamics are projected among countries and subregions. It is expected that the Gross Domestic Product (GDP) of South America will grow 0.6% this year, while the economies of Central America and Mexico are seen expanding 2.5% on average, thanks to an increase in remittances income and improved growth expectations for the United States, which is its main trading partner. Meanwhile, for the economies of the English- and Dutch-speaking Caribbean, 1.2% growth is forecast, following a -0.8% contraction in 2016.

The report foresees that, in contrast to last year, all the countries in the region will experience positive growth rates in 2017, with the exception of Venezuela – the GDP of which is seen falling -7.2% – and two countries in the Caribbean (Saint Lucia and Suriname, the GDP of which is forecast to contract -0.2%).

According to ECLAC, some of the factors that will positively affect the region’s economic performance this year include the moderate recovery of the global economy, which will end 2017 with growth of 2.7%, three-tenths of a percentage point higher than in 2016; a slight rebound in the volume of international trade (2.4%); and increased price levels for basic products, which are forecast to be 12% higher on average than last year. At the same time, from the perspective of spending, a narrow improvement in investment and greater dynamism in private consumption are being observed.

Furthermore, it is expected that the regional current account balance in 2017 will remain at similar levels to those of 2016, around -1.9% of GDP, although with an improvement in the terms of trade and an increase in exports (which is forecast at 8% for the entire year).

The report indicates that in the area of employment, despite the rebound seen in economic growth during the first quarter of 2017, labor conditions have continued to deteriorate due to a new interannual decline in the rate of urban employment. For the region as a whole, the rate of urban unemployment is forecast to rise from 8.9% in 2016 to 9.4% in 2017. That would put the cumulative increase in the urban unemployment rate at 2.5 percentage points between 2014 and 2017.

In the fiscal arena, the average deficit in Latin America is seen holding steady in 2017, at around -3.1% of GDP, although with different trends among subregions. Meanwhile, average inflation in the economies of the region has fallen since the second half of 2016, despite the fact that three economies still have rates above 20%. This trend has held firm in the first five months of 2017, with average inflation falling by 1.6 percentage points, from 7.3% in 2016 to 5.7% in May 2017.

The Economic Survey of Latin America and the Caribbean 2017 also includes, exclusively on ECLAC’s website (www.cepal.org), notes about the economic performance of each of the region’s countries in 2016 and in the first half of 2017, as well as the respective statistical annexes. The information presented has been updated through June 30, 2017, based on the official databases provided by countries.