In its Global Economic Prospects report released January 8, the World Bank predicts the global economy will rise up to 2.5 percent in 2020 as investment and trade recover from last year’s slowdown. Amongst its predictions, advanced economies growth is anticipated to slip to 1.4 percent in 2020, while growth in emerging markets is set to accelerate to 4.1 percent.
About a third of emerging markets and developing countries are projected to decelerate in 2020 due to weaker-than-expected exports and investment. According to World Bank Group Vice President for Equitable Growth, Finance and Institutions Ceyla Pazarbasioglu, “with growth in emerging and developing economies likely to remain slow, policymakers should seize the opportunity to undertake structural reforms that boost broad-based growth, which is essential to poverty reduction… Steps to improve the business climate, the rule of law, debt management, and productivity can help achieve sustained growth.”
However, risks to the global outlook remain, and their materialization could significantly slow down growth. A principal risk that remains is the potential re-escalation of trade tensions, mainly between the United States and China, as well as financial shocks in emerging markets and developing economies.
Latin America and the Caribbean was not immune to the global economic slowdown in 2019. The World Bank report notes that during the last year, regional growth decelerated to an estimated 0.8 percent, with all three primary economies in the region—Argentina, Brazil and Mexico—performing worse than predicted due to idiosyncratic factors.
Two other key factors affected the regional economy last year. The first, is the advancement of key developments in policy such as the passage of the United States-Mexico-Canada Agreement (USMCA)–currently under review by the U.S. Senate–and the free trade agreement signed between the regional economic bloc, Mercosur (Argentina, Brazil, Paraguay and Uruguay) and the European Union—a deal that has been in the works for over two decades.
The second was the social unrest experienced by various countries in the region toward the end of the year. Unrest in Chile, Bolivia, Ecuador and the continuing humanitarian, political and economic crises in Venezuela all played a role in the region’s slow growth.
The World Bank predicts that in 2020, the regional economy will rise to a tepid 1.8 percent, from an estimated 0.8 percent growth in 2019. The modest prediction is contingent on faster private consumption and investment growth, and highly dependent on economic growth from the major economies.
This year, Brazil’s economy is expected to grow by 2 percent (vs. est. 1.1 percent growth in 2019), thanks to a boost in investor confidence following progress on major reforms, such as a reform on the country’s pension system. This along with other boosts are anticipated to support an increase in investment and private consumption. In Mexico, as investment picks up growth is also expected to rise to 1.2 percent, against an estimated zero percent growth in 2019. Colombia’s economy, in turn, is set to rise to 3.6 percent in 2020, and about 3.9 percent in 2021-22, envisioned to boost the outlook for the region as planned infrastructure projects take place and investment continues to increase.
Thanks to offshore oil production developments off the coast of Guyana, the Caribbean is expected to accelerate to 5.6 percent. This is in deep contrast to Argentina, where the country’s economy is set to contract to 1.3 percent as the new government attempts to deal with high inflation, maintaining fiscal prudence, amongst other financial woes.
Risks to economic growth
Like the global economy, external factors risk the region’s economic growth. A major regional trade partner, China plays a significant role in Latin America’s economy. Further economic slowdown of China’s economy or a re-escalation of the U.S.-China trade war could expose the region to negative impacts through trade, commodity prices, and confidence channels. Countries that rely heavily on China as a destination for their exports, such as Brazil, Chile, Peru and Uruguay, are more exposed to U.S.-China trade tension. Likewise, slow growth in the United States could heavily affect Mexico and other countries reliant on the U.S. economy.
Natural disasters and climate-related events will also affect the region, and more specifically the Caribbean. This past September, Hurricane Dorian devastated the Caribbean island of The Bahamas resulting in $3.4 billion worth of damage, equivalent to a quarter of the country’s GDP. The World Bank also warns social tensions in the region could persist or extend geographically more than expected, which would generate negative economic repercussions. As noted by Bloomberg, while the most violent protests have dissipated—for now—with fragile institutions and weak rule of law, income inequality, ethnic conflict and police brutality “will continue to gnaw away at social cohesion and could once again spark unrest unexpectedly and suddenly.”