Trade tension, strong dollar hit Latin America’s growth

Trade tension, strong dollar hit Latin America’s growth

MEXICO CITY-Agence France-Presse
Trade tension, strong dollar hit Latin America’s growth

Latin America’s economic growth is set to come in lower than expected this year, as U.S. protectionism and widespread wariness of emerging markets put a drag on the region, a U.N. panel said on Aug. 23.

The Economic Commission for Latin America and the Caribbean (ECLAC) slashed its growth forecast for the region by 0.7 point to 1.5 percent, saying the “complex global scenario” had dimmed the outlook since its last report in April.

It has been a tough year for emerging markets across the board, with global trade tension taking its toll and the strong U.S. dollar battering many currencies and bonds -- notably in Argentina and Turkey.
ECLAC cited a laundry list of problems slowing Latin America’s economies: “Trade disputes between the United States, China and other nations,” “growing geopolitical risk,” “a decline in capital flows toward emerging markets in the last few months and a rise in sovereign risk levels,” “depreciations of local currencies against the dollar,” and “a global economic expansion that is tending to lose momentum.”

It has been a roller-coaster ride for emerging markets in recent years, and Latin America has been whipped around as much as any region.

Growth in the emerging economies helped pull the world out of recession after the 2008 financial crisis, but the lingering effects of that crisis have taken their toll -- now exacerbated by the impact of US President Donald Trump’s protectionist policies and the soaring dollar.

Latin America’s economies posted solid growth of 6.2 percent in 2010, but then tipped into a two-year regional recession in 2015.

The region’s gross domestic product returned to growth of 1.2 percent last year. But now its tepid recovery is in jeopardy.

Some Latin American countries have found themselves in Trump’s firing line.

The most notable case is Mexico, which sends some 80 percent of its exports to the United States under the North American Free Trade Agreement.

Trump has insisted on renegotiating that deal, and threatened to scrap it altogether.

The U.S. president has hit Brazil, Mexico and Argentina with steel and aluminum tariffs or quotas, along with the European Union, Canada and other countries.

The region also has suffered the indirect effects of the current global climate, one “marked by uncertainty and volatility,” said ECLAC.

Ironically, Latin America’s fundamentals remain relatively solid.

ECLAC predicted the region-wide primary deficit would fall to 0.5 percent of GDP this year, and that average inflation would remain within the expected range at 6.5 percent to June -- excluding regional basket-case Venezuela.

But the outlook is uneven across the region, said the head of the United Nations panel, Alicia Barcena, who presented the report in Mexico City.

“Mexico and Central America are doing better than South America in 2018,” she said.

Brazil, the region’s largest economy, will grow 1.6 percent this year, up from 1 percent last year, ECLAC predicted.

Mexico, the second-largest, will grow 2.2 percent, up from 2 percent last year.

Argentina, the third-largest, is meanwhile facing a contraction of 0.3 percent, down from 2.9 percent growth last year.

Oil giant Venezuela, which is plunged in a political and economic crisis, is facing a contraction of 12 percent, after shrinking 13 percent last year, ECLAC said.