Strong Commodity Prices To Drive Economic Growth In Latin America: IMF

By Paul Ploumis

SPOKANE (Scrap Monster): The Latin American region is predicted to report gross domestic product (GDP) growth in 2017. Furthermore, the growth will strengthen in 2018. This is in accordance with the latest report published by the International Monetary Fund (IMF).

The IMF Report forecasts 1.1% GDP growth in Latin America and the Caribbean in 2017. The economic growth will expand to 2% in 2018. However, the growth is expected to remain subdued at 2.6% over the medium term. It must be noted that the economic growth had remained stagnant in 2015 and had later contracted by 1% in 2016. The growth decline during the previous year was mainly on account of falling commodity prices and various other domestic issues. The projected revival in 2017 and 2018 will be mainly driven by modest recovery in commodity prices. Upturn in commodity prices will offer some relief to the region’s overall economic situation, the IMF report states. It must be noted that commodity price recovery has helped to ease pressure on region’s commodity exporters.

Despite recovery in commodity prices, Chile-the key copper exporting nation in the region is expected to post a subdued growth of 1.7% in 2017. The recovery is expected to gain momentum towards end-2017 and in 2018. While Central America is likely to report robust growth, countries such as Brazil, Argentina, Ecuador and Venezuela are likely to see deep contractions. The report cites Venezuela’s economy as an exception. The country’s economy is expected to remain in deep recession. The IMF report predicts that Venezuela is on the road to hyperinflation. In 2017, the country’s GDP id feared to decline by 7.4%.

In Bolivia, the GDP is expected to expand by nearly 4% in 2017. It must be noted that the country’s economic growth has moderated from 6% during 2013-’15 to 4.1% in 2016. A mild rebound in economy is expected in Colombia. Recovery in oil prices offers improved outlook to Ecuador’s economy in the medium term. The surge in copper production led to 3.9% economic growth by Peru in 2016. The growth in 2017 is expected to remain at more or less the same level as the year before. Uruguay, after managing to come out of recession, has reported strong economic growth during the second half of 2016. Paraguay, which reported solid 4% economic growth in 2016 is expected to report moderate growth during the current year.

Central America and Mexico are exposed to risks, mainly on account of trade ties with the US. Mexico’s GDP growth is expected to drop to 1.7% in 2017. However, IMF forecasts 2% growth in 2018. A recovery in US markets supported growth in Central America, Panama and the Dominican Republic. Growth in Panama remained at 5% in 2016, whereas Dominican Republic reported a growth of 6.5% during the previous year.

Commodity exporting countries such as Trinidad and Tobago and Suriname saw sharp negative growth on account of declining commodity prices in 2015 and 2016. These countries are likely to benefit from the modest recovery in commodity prices and are likely to report modest positive growth in 2017 and 2018. The rise in commodity prices should help to lift the external position of these countries in 2017 and 2018.