In Transition: The Outlook for Latin America and the Caribbean


Event onlyBy Alejandro Werner

Versions in: Português (Portuguese),  Español (Spanish)

Following a rough start at the beginning of the year, both external and domestic conditions in Latin America and the Caribbean have improved. But the outlook for the region is still uncertain.

Commodity prices have recovered since their February 2016 trough, but they are still expected to remain low for the foreseeable future. This has been accompanied by a brake—or even a reversal—in the large exchange rate depreciations in some of the largest economies in the region.

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Rising Latin American Corporate Risk: Walking a Tightrope


By Carlos Caceres and Fabiano Rodrigues Bastos

Versions in Português (Portuguese) and Español (Spanish)

The rapid increase in Latin American corporate debt—fueled by an abundance of cheap foreign money during the past decade—has contributed to an increase in corporate risk. Total debt of nonfinancial firms in Latin America increased from US$170 billion in 2010 to US$383 billion in 2015. With potential growth across countries in the region slowing, in line with the end of the commodity supercycle, it will now be more difficult for firms to operate under increased debt burdens and reduced safety margins.

In this environment, Latin American firms are walking a tightrope. With external financial conditions tightening, the walk towards the other side—notably through adjustment and deleveraging—while necessary, has become riskier. After making good progress, the crossing has also become more perilous due to strong headwinds—including slower global demand and bouts of heightened market volatility.

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Unemployment: Troubles Ahead for Emerging Markets


By Prakash Loungani and Zidong An

Version in Español (Spanish)

Forecasts of real GDP growth attract a lot of media attention. But what matters more to the person on the street is how growth translates into jobs. Unfortunately, the mediocre growth outlook of recent years may lead to a disturbing outlook for jobs, particularly among fuel-exporting countries and in the Latin America and Caribbean region.

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The Price of Oil and the Price of Carbon


By Rabah Arezki and Maurice Obstfeld

(Versions in عربي中文Français日本語,  Русский, and Español)

“The human influence on the climate system is clear and is evident from the increasing greenhouse gas concentrations in the atmosphere, positive radiative forcing, observed warming, and understanding of the climate system.”Intergovernmental Panel on Climate Change, Fifth Assessment Report

Fossil fuel prices are likely to stay “low for long.” Notwithstanding important recent progress in developing renewable fuel sources, low fossil fuel prices could discourage further innovation in and adoption of cleaner energy technologies. The result would be higher emissions of carbon dioxide and other greenhouse gases.

Policymakers should not allow low energy prices to derail the clean energy transition. Action to restore appropriate price incentives, notably through corrective carbon pricing, is urgently needed to lower the risk of irreversible and potentially devastating effects of climate change. That approach also offers fiscal benefits.

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Bad Debt in Emerging Markets: Still Early Days


by John Caparusso, Yingyuan Chen, Evan Papageorgiou and Shamir Tanna

(Versions in 中文, PortuguêsРусский, and Español)

Emerging markets have had a great run. The fifteen largest emerging market economies grew by 48% from 2009 to 2014, a period when the Group of Twenty economies collectively expanded by 6%.

How did emerging markets sustain this growth? In part, they drew upon bank lending to drive corporate credit expansion, strong earnings, and low defaults. This credit boom, combined with falling commodity prices and foreign currency borrowing, now leaves emerging market firms vulnerable and financial sectors under stress, as we discuss in the latest Global Financial Stability Report.

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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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(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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