Trading Out of Trouble in Latin America

By Natalija Novta and Fabiano Rodrigues Bastos

(Versions in Español and Português)

Growth in Latin America and the Caribbean is suffering a double whammy—economic activity has slowed down sharply and the medium-term outlook continues to deteriorate. It is therefore not surprising that policymakers across the region are eagerly searching for ways to revitalize growth.

One answer may be more trade—both within the region and with the rest of the world. Our new study analyzes the export performance in developing and emerging market regions over the past two decades to assess the potential for future export growth in Latin America. We find evidence that most countries in the region “undertrade” compared to what standard models would predict. This has been an entrenched problem for almost a quarter of a century, partly as a result of the region’s geography and a legacy of protectionist policies.

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To Hike or Not to Hike? Monetary Policy in Latin America During Fed Liftoff

By Carlos Caceres, Yan Carrière-Swallow, and Bertrand Gruss

(Versions in Español and Português)

As the U.S. Federal Reserve prepares to raise policy rates for the first time in almost a decade, Latin America is in the midst of a sharp downturn with unemployment on the rise. In this context, many central banks across the region have kept interest rates low to support economic activity. But can monetary policy stay that way as global rates rise? What will the Fed liftoff imply for the region?

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Raising Long-Run Growth in Latin America and the Caribbean—A Complex(ity) Issue

By Fabiano Rodrigues Bastos and Ke Wang

(Versions in Español and Português)

Growth in Latin America and the Caribbean has weakened significantly over the last few years. Part of this weakness appears to be here to stay, and IMF economists have marked down medium-term growth projections. This story sounds eerily familiar, given the region’s past difficulties to improve its comparative growth performance.

Abstracting from the “golden decade” from 2003 to 2011, when rising commodity prices powered a strong expansion, why has the region been unable to sustain sufficiently high growth rates to catch up with more advanced economies? Part of the answer is Latin America’s modest success in branching out into more sophisticated—or complex—goods.

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A Watershed Moment for Latin America: Nine Takeaways from our High-Level Conference

Alejandro WernerBy Alejandro Werner

(Versions in Español and Português)

Latin America has reached a critical moment. So much better off than two decades ago, and still facing deep-seated problems that get in the way of sustained strong growth and economic development. To better understand these problems from countries’ perspectives, and explore ways the IMF and others can help address them, we brought together experts from the region and beyond—central bankers, finance ministers, and academics—for a high-level conference in Washington, D.C. earlier this week.

Under the theme of “Rising Challenges to Growth and Stability,” participants engaged in lively debates about the current difficulties facing Latin America and the policy priorities for now and the future.

Here are my main takeaways from the event:

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Northern Spring, Southern Chills: Outlook for Latin America and the Caribbean

Alejandro WernerBy Alejandro Werner

(Version in Español and Português)

Economic activity in Latin America and the Caribbean has been cooling down for several years, and the temperature in many places is still falling. Regional growth is now expected to dip below 1 percent in 2015—down from 1.3 percent in 2014. Apart from a short-lived recession during the global financial crisis, this would be the slowest rate of growth since 2002.

However, growth dynamics vary across the region, broadly along North-South lines. While spring may be in the air for Mexico, Central America, and parts of the Caribbean, the economic climate remains decidedly chilly in much of South America. What is behind these divergent prospects, and how can a sunnier outlook be restored to the entire region?

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(Yet) Another Year of Subpar Growth: Latin America and the Caribbean in 2015

Alejandro WernerBy Alejandro Werner

(version in Español and Português)

The turn of the year usually brings a fresh dose of optimism. Yet, worries dominate across much of Latin America and the Caribbean today, as 2015 marks yet another year of reduced growth expectations. Regional growth is projected at just 1¼ percent, about the same low rate as in 2014 and almost 1 percentage point below our previous forecast. Challenging external conditions are an important drag for many countries. Still, it’s not too late for some good New Year’s resolutions to address domestic weaknesses and improve growth prospects.

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Mind the Dragon: Latin America’s Exposure to China

By Bertrand Gruss and Fabiano Rodrigues Bastos 

(version in Español and Português)

China is still a distant and exotic country in the mind of many people in Latin America. Yet, with the Asian giant rapidly expanding its ties with the region (the share of exports going to China is now ten times larger than in 2000), their economic fates seem to be increasingly connected. And in fact, a sharper slowdown in China now represents one of the key risks Latin Americans should be worried about—and prepare for. So, what is at stake? How much do shocks to China matter for economies in Latin America?

In an earlier study presented in our April 2014 Regional Economic Outlook, we analyzed growth spillovers in a large model of the global economy, focusing on the link through commodity prices. Here, we complement that analysis by using a simple yet novel approach that exploits the reaction of financial markets to the release of economic data. We find that growth surprises in China have a significant effect on market views about Latin American economies.

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