“Sluggish,” “lackluster,” “underperforming”. Any one of these terms accurately describes Latin America’s economic performance in 2019. That is not good news. Most discouraging is that 2020 will not be much better.
The latest report from the UN’s Economic Commission on Latin America and the Caribbean does a deep dive into the economic malaise and challenges confronting Western Hemisphere nations. While it does not prescribe a specific path forward, the findings imply fiscal, monetary, trade and wage actions that could improve the region’s economies.
Seen in a larger context, global economic growth in general last year registered 2.5%, the lowest since the worldwide financial crisis of a decade ago. Weak economic activity and trade have also depressed investment; and slow growth in the U.S. (less than 2%) and China (6% only, the lowest in 30 years), Latin America’s two largest trading partners, does not bode well for a recovery anytime soon. Commodity prices are expected to decline further, bringing temporary relief to producer countries with weaker currencies such as Argentina.
One would think that aggressive monetary and fiscal policies would be the right tonic to attempt to reignite the anemic economies of the Western Hemisphere. However, at present there are a host of limitations. To begin with, in industrialized nations interest rates not only are very low but in a number of cases they are in negative territory. While these low rates are advantageous for public investment in infrastructure, the option for stimulus is constrained by the huge public debts and fiscal deficits. With debt outpacing income, the imbalance is made worse by many emerging economies—and that includes Latin America and the Caribbean—having a significant amount of their debt denominated in foreign currencies.
In effect, the Latin American and Caribbean region will log in a GDP growth rate of 1.3% for the seventh straight year of low growth, resulting in a nearly 4% decline in GDP per capita during that period. Only five of 20 Latin American economies will most likely achieve growth rates above the average from 2014 to 2018. Argentina, Venezuela and Nicaragua will see negative growth. South America will experience growth of around 1.2%, Central America double that amount, and the Caribbean 5.6% largely due to Guyana’s oil production, with that nation witnessing a jump in GDP of 4.5% in 2019 to 85.6% forecast for 2020.
While the macroeconomic scenario for Latin America and the Caribbean paints a dreary picture, the microeconomic outlook—closer to reality, since it focuses on sectors, industries, firms and individuals—gives reason to be cautiously optimistic.
For example, French retailer Carrefour’s Brazilian subsidiary and insurance giant Sul América plan to enter Brazil’s Bovespa equities index this year. The InterContinental Hotels Group is bullish on Latin America and continues to grow in the region. The company opened 6,000 new rooms in the third quarter of 2019, the highest number of rooms in seven years. Another bright spot is the digital payments market, growing at a rate of 20 percent year-on-year, according to the Boston Consulting Group’s Global Payments Report 2019. One more large, positive indicator is technology. According to the Global Interconnection Index (GXI), Latin America will contribute 11% of the world’s interconnection bandwidth by 2022, which will reach a compound annual growth of 63% and will be the fastest growing region in terms of interconnection.
In essence, despite the gloomy macroeconomic environment, the key drivers of access to credit, technology expansion, and a growing consumer class (middle class, working class, Millennials and Gen Xers) will safeguard against further deterioration in regional economic performance and position Western Hemisphere nations to take advantage of the next global growth spurt. Meanwhile, consumer confidence levels in Brazil, Colombia, Peru and Mexico are all on the upswing. In a survey late last year of the president of Latin American subsidiaries of multinational firms, conducted by Americas Market Intelligence, the vast majority are optimistic about growth and their firms’ performance in the region, especially in large market countries, except for Argentina and Venezuela.
For South Florida, a community that thrives on commercial relations in trade, investment and finance with the Western Hemisphere, there is cause to be concerned about lagging economic performance in Latin American and Caribbean nations but hope in light of the microeconomic conditions—those that count the most in the transactional world of business—as 2020 gets underway.
Jerry Haar is a professor of international business and Executive Director for the Americas in the College of Business at Florida International University.