Regional Economic Outlook April 2017 Western Hemisphere Department

With the global economy gaining some momentum, economies of Latin America and the Caribbean are recovering from a recession at the regional level in 2016. This gradual improvement can be understood as tale of two adjustments, external and fiscal, that are ongoing in response to earlier shocks. But headwinds from commodity terms-of-trade shocks and country-specific domestic factors are fading, paving the way for real GDP to grow by about 1 percent in 2017. Regional activity is expected to pick up further momentum in 2018, but at a slower pace than previously anticipated, while medium-term growth is projected to remain modest at about 2.6 percent. The outlook is shaped by key shifts in the global economic and policy landscape—where slow growth, low productivity, and high income inequality are creating pressure for a shift toward inward- looking policies in some advanced economies. Domestic fundamentals and developments, however, will continue to play a significant role in determining growth for the region. At the same time, risks to the outlook have widened in a setting of higher global uncertainty. In this challenging external context, countries should aim for completing fiscal and external adjustments to preserve or rebuild policy buffers. Charting a course toward higher, sustainable, and more equitable growth will also require strengthening structural reforms. Specifically, closing infrastructure gaps, improving the business environment, governance, and education outcomes, and encouraging female labor participation are necessary to boost medium-term growth and foster income convergence. Chapters in this report examine the ongoing external adjustment to terms-of-trade shifts, drivers of capital flows to the region, the role of the investor base, and macroeconomic impact of migration and remittances.

The world economy and global trade are experiencing a broad-based cyclical upswing. Since October 2017, global growth outcomes and the outlook for 2018–19 have improved across all regions, reinforced by the expected positive near-term spillovers from tax policy changes in the United States. Accommodative global financial conditions, despite some tightening and market volatility in early February 2018, have been providing support to economic recovery. Higher commodity prices are contributing to an improved outlook for commodity exporters. The US and Canadian economies posted solid gains in 2017 and are expected to grow above potential in the near term. Despite the improved near-term outlook, however, medium-term prospects are tilted downwards. Growth prospects for advanced economies are subdued and many emerging market and developing economies are projected to grow in per capita terms more slowly than advanced economies, raising concerns about income convergence. While risks appear broadly balanced in the near term, they skew to the downside over the medium term, including a possible sharp tightening of financial conditions, waning popular support for global economic integration, growing trade tensions and risks of a shift toward protectionist policies, and geopolitical strains.

The world economy and global trade are experiencing a broad-based cyclical upswing. Since October 2017, global growth outcomes and the outlook for 2018–19 have improved across all regions, reinforced by the expected positive near-term spillovers from tax policy changes in the United States. Accommodative global financial conditions, despite some tightening and market volatility in early February 2018, have been providing support to economic recovery. Higher commodity prices are contributing to an improved outlook for commodity exporters. The US and Canadian economies posted solid gains in 2017 and are expected to grow above potential in the near term. Despite the improved near-term outlook, however, medium-term prospects are tilted downwards. Growth prospects for advanced economies are subdued and many emerging market and developing economies are projected to grow in per capita terms more slowly than advanced economies, raising concerns about income convergence. While risks appear broadly balanced in the near term, they skew to the downside over the medium term, including a possible sharp tightening of financial conditions, waning popular support for global economic integration, growing trade tensions and risks of a shift toward protectionist policies, and geopolitical strains.

The United States has seen an improvement in economic activity, driven by consumption, and has taken a first step toward gradual normalization of interest rates. The U.S. recovery continues to support activity in Mexico, Central America, and the Caribbean, but China’s slowdown has reduced the demand for exports from South America. At the same time, the region’s commodity exporters have experienced further terms-of-trade shocks as commodity prices continue their decline globally. This report describes the policies and economic reforms needed to address the declining productive capacity in Latin America and the Caribbean. Three chapters assess corporate vulnerabilities in Latin America, analyze the degree of exchange rate pass-through in the region, and evaluate trends in public and private infrastructure investment.

Amid escalating trade tensions, tighter financial conditions, and volatile commodity markets, economic recovery in Latin America and the Caribbean has both moderated and become more uneven.

Regional Economic Outlook, October 2019, Western Hemisphere Department

Economies in the Western Hemisphere are generally seeing a slowdown in growth. The U.S. economy regained momentum after a slow start at the beginning of the year, while in Latin America and the Caribbean economic activity continues to decelerate. Stronger U.S. growth should benefit countries in the region, especially those with tighter links through trade, remittances, and tourism (Mexico, Central America, and the Caribbean). Weaker commodity prices for the foreseeable future, however, will continue to hurt South America's net commodity exporters, lowering national incomes, reducing investment, and worsening fiscal balances. These developments could, in turn, impede progress made in recent years in poverty reduction. These developments could, in turn, impede progress made in recent years in poverty reduction. Key risks, including an abrupt tightening of U.S. interest rates or a further slowdown in China, may disproportionately affect Latin America. Chapters in this report examine monetary policy in Latin America, including the region’s exposure to global financial shocks; the role of value chains and regional trade agreements in fostering trade integration; and financial market development in the region.

Growth in much of Latin America remains solid, although it slowed during the second half of 2011 as result of the combined effects of policy tightening and global uncertainties. Under our baseline, we expect growth in Latin America and the Caribbean to moderate to about 33⁄4 percent in 2012, from about 41⁄2 last year. For many countries, high commodity prices and easy external financing conditions will provide tailwinds. For others, weak growth in the United States and other advanced-country partners, or homegrown fiscal problems, will hold back activity. This edition of the Regional Economic Outlook: Western Hemisphere elaborates on three key themes. First, the global economic environment is somewhat better than in late 2011, but remains risky as renewed tensions from Europe and the likelihood of an oil price shock cannot be discarded. Second, external conditions will remain stimulative for much of Latin America: The double tailwinds of easy external finance and high commodity prices are likely to persist for a while, though not forever. And third, this environment creates opportunities for Latin America-opportunities to build on the resilience and flexibility that has served it so well during the global crisis of 2008-09. This edition also expands on these themes through analytical features on regional spillovers, the growth effects of global financial shocks, and housing and mortgage markets in the region.