Preliminary Overview of the Economies of Latin America and the Caribbean

Transcription

1 2014 Preliminry Overview of the Economies of Ltin Americ nd the Cribben

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3 Alici Bárcen Executive Secretry Antonio Prdo Deputy Executive Secretry Dniel Titelmn Chief, Economic Development Division Ricrdo Pérez Chief, Publictions nd Web Services Division The Preliminry Overview of the Economies of Ltin Americ nd the Cribben is n nnul publiction prepred by the Economic Development Division of the Economic Commission for Ltin Americ nd the Cribben (ECLAC). This 2014 edition ws prepred under the supervision of Dniel Titelmn, Chief of the Division, while Jürgen Weller, Senior Economic Affirs Officer in the sme Division, ws responsible for the overll coordintion. In the preprtion of this edition, the Economic Development Division ws ssisted by the Sttistics Division, the ECLAC subregionl hedqurters in Mexico City nd Port of Spin, nd the Commission s country offices in Bogot, Brsili, Buenos Aires, Montevideo nd Wshington, D.C. The regionl nlyses were prepred by Dniel Titelmn with input from the following experts: Luis Felipe Jiménez, Alexnder Loschky, José Luis Germán nd Pblo Crvllo (externl sector); Ricrdo Mrtner, Jun Pblo Jiménez, Michel Hnni nd Ivonne González (fiscl policy); Rmón Pined, Rodrigo Cárcmo, Yusuke Tteno nd Alejndr Acevedo (monetry, exchnge-rte nd mcroprudentil policies); Sndr Mnuelito (ctivity nd prices); Seung-jin Bek (prices), nd Jürgen Weller (employment nd wges). The economic projections were produced by Sndr Mnuelito, Alexnder Loschky nd Cludio Arven with input from the ntionl offices nd subregionl hedqurters. Ald Díz ws responsible for the processing nd presenttion of the sttisticl dt nd grphicl presenttions. The country notes re bsed on studies conducted by the following experts: Anhí Amr nd Dniel Veg (Argentin), Michel Hendrickson (Bhms nd Belize), Willrd Phillips (Brbdos), Alexnder Loschky (Bolivrin Republic of Venezuel), Crlos Mussi (Brzil), Luis Felipe Jiménez (Chile), Olg Lucí Acost, Jun Crlos Rmírez nd Luis Jvier Uribe (Colombi), Rodolfo Minzer (Cost Ric nd Pnm), Indir Romero (Cub), Willy Zpt (Dominicn Republic nd Nicrgu), Sndr Mnuelito (Ecudor), Frncisco Villrrel (El Slvdor), Stefnie Grry (Guteml), Michel Millign (Guyn), Rndolph Gilbert (Hiti), Cmeron Dneshvr (Hondurs), Dillon Alleyne (Jmic nd Surinme), Rmón Pdill (Mexico), Soni Gontero (Prguy), Rodrigo Cárcmo (Peru), Michel Hnni (Plurintionl Stte of Bolivi), Mchel Pntin (Trinidd nd Tobgo), Sheldon McLen (Estern Cribben Monetry Union), Verónic Amrnte nd Álvro Llnne (Uruguy). Seung-jin Bek, José Luis Germán nd Yusuke Tteno reviewed the notes for the Cribben countries. The country notes re vilble on line t The cut-off dte for the informtion presented in this publiction ws 25 November Notes - The following symbols hve been used in the tbles shown in the Preliminry Overview: - Three dots ( ) indicte tht dt re not vilble or re not seprtely reported. - A dsh (-) indictes tht the mount is nil or negligible. - A full stop (.) is used to indicte decimls. - The word dollrs refers to United Sttes dollrs unless otherwise specified. United Ntions publiction ISBN: (print nd pdf) ISBN: (epub) ISSN printed version: ISSN electronic version: LC/G.2632-P Sles No.: E.15.II.G.2 Copyright United Ntions, 2014 All rights reserved. Printed t United Ntions, Sntigo, Chile This publiction should be cited s: Economic Commission for Ltin Americ nd the Cribben (ECLAC), Preliminry Overview of the Economies of Ltin Americ nd the Cribben, 2014, (LC/G.2632-P), Sntigo, Chile, Applictions for uthoriztion to reproduce this work in whole or in prt should be sent to the Secretry of the Publictions Bord, United Ntions Hedqurters, New York, N.Y , United Sttes of Americ. Member Sttes nd their governmentl institutions my reproduce this work without prior uthoriztion, but re requested to mention the source nd to inform the United Ntions of such reproduction.

4 Contents Executive summry...7 Chpter I Interntionl context...13 Chpter II Economic ctivity...17 Chpter III Domestic prices...23 Chpter IV Employment nd wges...27 Chpter V The externl sector...33 Chpter VI Mcroeconomic policies...39 A. Fiscl policy...39 B. Monetry, exchnge-rte nd mcroprudentil policies...44 Chpter VII Outlook for 2015 nd chllenges...49 Sttisticl nnex...53 ECLAC recent publictions...85 Tbles Tble III.1 Tble V.1 Ltin Americ nd the Cribben: 12-month cumultive rte of vrition in generl consumer infltion nd in foods nd beverges price index, Ltin Americ (18 countries): current ccount blnce nd components of the finncil ccount...37 Tble VII.1 Ltin Americ nd the Cribben: nnul growth in gross domestic product, Tble A-1 Ltin Americ nd the Cribben: min economic indictors...53 Tble A-2 Ltin Americ nd the Cribben: gross domestic product...54 Tble A-3 Ltin Americ nd the Cribben: per cpit gross domestic product...55 Tble A-4 Ltin Americ nd the Cribben: gross fixed cpitl formtion...56 Tble A-5 Ltin Americ nd the Cribben: blnce of pyments...57 Tble A-6 Ltin Americ nd the Cribben: interntionl trde of goods...60 Tble A-7 Ltin Americ: terms of trde for goods f.o.b./f.o.b...61 Tble A-8 Ltin Americ nd the Cribben (selected countries): remittnces from emigrnt workers...61 Tble A-9 Ltin Americ nd the Cribben: net resource trnsfer...62 Tble A-10 Ltin Americ nd the Cribben: net foreign direct investment...63 Contents 3

5 Economic Commission for Ltin Americ nd the Cribben (ECLAC) Tble A-11 Tble A-12 Tble A-13 Tble A-14 Tble A-15 Tble A-16 Tble A-17 Tble A-18 Tble A-19 Tble A-20 Tble A-21 Tble A-22 Tble A-23 Tble A-24 Tble A-25 Tble A-26 Tble A-27 Tble A-28 Tble A-29 Tble A-30 Tble A-31 Ltin Americ nd the Cribben: gross externl debt...64 Ltin Americ nd the Cribben: sovereign spreds on EMBI+ nd EMBI globl...65 Ltin Americ nd the Cribben: sovereign risk premiums on five-yer credit defult swps...65 Ltin Americ nd the Cribben: interntionl bond issues...66 Ltin Americ nd the Cribben: stock exchnge indices...66 Ltin Americ nd the Cribben: gross interntionl reserves...67 Ltin Americ nd the Cribben: rel effective exchnge rtes...68 Ltin Americ nd the Cribben: prticiption rte...69 Ltin Americ nd the Cribben: open urbn unemployment...70 Ltin Americ nd the Cribben: employment rte...71 Ltin Americ: rel verge wges...72 Ltin Americ nd the Cribben: monetry indictors...73 Ltin Americ nd the Cribben: domestic credit...76 Ltin Americ nd the Cribben: monetry policy rtes...77 Ltin Americ nd the Cribben: representtive lending rtes...78 Ltin Americ nd the Cribben: consumer prices...79 Ltin Americ nd the Cribben: fiscl blnces...80 Ltin Americ nd the Cribben: centrl government revenues composition...81 Ltin Americ nd the Cribben: centrl government expenditure composition...82 Ltin Americ nd the Cribben: centrl government gross public debt...83 Ltin Americ nd the Cribben: non-finncil public sector gross public debt...84 Figures Figure I.1 Selected regions nd countries: GDP growth, Figure I.2 Ltin Americ nd the Cribben: economic growth in extrregionl trding prtner economies...14 Figure I.3 Index of interntionl commodity prices, weekly vlues, Jnury 2013 to November Figure II.1 Ltin Americ nd the Cribben: GDP growth rtes, Figure II.2 Ltin Americ nd the Cribben: yer-on-yer chnge in qurterly GDP, Figure II.3 Ltin Americ: GDP growth rte nd contribution to growth by the components of domestic demnd nd net exports, Figure II.4 Ltin Americ: nnul growth in GDP nd gross ntionl disposble income, Figure II.5 Ltin Americ: finncing of gross domestic investment, Figure III.1 Ltin Americ nd the Cribben: consumer price index, 12-month vrition, Jnury 2010-October Figure III.2 Ltin Americ nd the Cribben: 12-month cumultive rtes of consumer price infltion, food infltion nd core infltion, Jnury 2007-October Figure III.3 Ltin Americ nd the Cribben: 12-month rtes of vrition in indices of consumer prices, goods prices nd services prices, Jnury 2007-October Figure IV.1 Ltin Americ nd the Cribben: economic growth nd vrition in the urbn employment rte, Figure IV.2 Ltin Americ (10 countries): prticiption, employment nd unemployment rtes, rolling yers, first qurter 2011 to third qurter Figure IV.3 Ltin Americ nd the Cribben (16 countries): yer-on-yer vrition in urbn prticiption nd employment rtes, verge for first to third qurters of Figure IV.4 Ltin Americ nd the Cribben (simple nd weighted verges for 15 countries): yer-on-yer vrition in rtes of prticiption, employment nd unemployment for men nd women, verge for first to third qurters of Contents 4

6 Preliminry Overview of the Economies of Ltin Americ nd the Cribben 2014 Figure IV.5 Figure IV.6 Figure IV.7 Ltin Americ (7 countries): yer-on-yer vrition in the registered employment rte, rolling verges, first qurter of 2012 to third qurter of Ltin Americ (10 countries): yer-on-yer vrition in the hourly underemployment rte, verge for first to third qurters of Ltin Americ (10 countries): brekdown of yer-on-yer vrition in rel wges, by subregion, 2013 nd first three qurters of Figure V.1 Ltin Americ: current ccount structure, Figure V.2 Ltin Americ nd the Cribben: vrition in the terms of trde, Figure V.3 United Sttes, Europen Union, Chin nd the other BRICS: yer-on-yer vrition in imports, first qurter of 2011 to third qurter of Figure V.4 Ltin Americ: estimted vrition in export vlues, by volume nd price, Figure V.5 Ltin Americ: estimted vrition in import vlues, by volume nd price, Figure V.6 Figure V.7 Figure V.8 Ltin Americ nd the Cribben: yer-on-yer vrition in interntionl tourist rrivls, Ltin Americ nd the Cribben (12 countries): vrition in inflows of remittnces from migrnts brod, Ltin Americ: externl bond issues nd country risk ccording to EMBI+, Jnury 2010 to September Figure VI.1 Ltin Americ (19 countries): centrl government fiscl indictors, Figure VI.2 The Cribben (13 countries nd territories): centrl government fiscl indictors, Figure VI.3 Ltin Americ (19 countries): fiscl blnce nd public debt, Figure VI.4 The Cribben (13 countries nd territories): fiscl blnce nd public debt, Figure VI.5 Figure VI.6 Figure VI.7 Ltin Americ nd the Cribben: totl fiscl revenues nd centrl government tx revenues by subregion nd country grouping, Ltin Americ nd the Cribben: disggregted centrl government public spending by subregion nd country grouping, Brzil, Chile, Colombi, Mexico nd Peru: monetry policy rte, Jnury 2013 to November Figure VI.8 Ltin Americ nd the Cribben: monetry bse, first qurter of 2010 to third qurter of Figure VI.9 Figure VI.10 Ltin Americ nd the Cribben: verge lending rtes by subregion, Jnury 2010 to September Ltin Americ nd the Cribben: nnulized growth in domestic lending to the privte sector, Jnury 2008 to July Figure VI.11 Brzil, Chile, Colombi, Mexico nd Peru: nominl exchnge rte, Figure VI.12 Ltin Americ nd the Cribben: rel effective extrregionl exchnge rtes, Jnury 2011 to September Figure VI.13 Ltin Americ nd the Cribben: interntionl reserves, Figure VI.14 Ltin Americ nd the Cribben (26 countries): vrition in interntionl reserves, 2013 nd Contents 5

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8 Executive summry A. The interntionl context The world economy improved slightly in 2014, mid mixed performnce from developed countries nd slowdown in emerging economies. Globl economic growth incresed to 2.6%, compred with 2.4% in Trends were vried mong the developed countries. The United Kingdom stood out with economic growth ccelerting to 3.1% in 2014, up from 1.7% the previous yer. The United Sttes economy grew by 2.1%, slightly down on the 2013 figure of 2.2%, lbeit with second-hlf performnce tht bodes well for greter gins in Eurozone growth ws gin limited in 2014, with mrked contrsts between Germny nd Spin on the one hnd (which expnded by 1.5% nd 1.3% respectively) nd, on the other, Frnce, which posted growth of just 0.3%, nd Itly, which went into recession with downturn of 0.4%. Jpn showed signs of recovery in erly 2014, but slipped into recession towrds the end of the yer. Growth in developing economies continued to slow in 2014, while nevertheless remining fr more buoynt thn in the developed world. On verge, developing economies grew by n estimted 4.4% in 2014, with Chin s growth slowing from 7.7% in 2013 to 7.3% in 2014, nd Indi s rising to 5.4%, from 4.7% in Consistently with these developments, the countries of Ltin Americ nd the Cribben hve seen externl ggregte demnd slump owing to the lcklustre performnce of developed economies nd the slowing of emerging ones, especilly Chin, which hs estblished itself s the min trding prtner for severl countries in the region, prticulrly those tht export rw mterils. Rw mteril prices resumed downwrd trend, especilly in the second hlf of 2014, lbeit with vrition from one commodity to nother. The estimted verge price fll for the group of rw mterils steepened to 10.5% in 2014, from 5.2% drop in The price of metls fell by 2.3% in 2014, hving tumbled by 16.7% in Food prices were down by bout 6.9%, compred with 15.5% fll in 2013; while energy prices plunged by some 17%, following 4.6% climb in Liquidity in interntionl finncil mrkets remined reltively high, thnks to the ccommodtive monetry policy of the min developed economies, s well s low risk perception. Interest rtes remined low, while the withdrwl of monetry stimulus mesures in the United Sttes did not led to interest rte increses, but cused some voltility in finncil flows during The Europen Centrl Bnk lunched progrmme of quntittive esing, which t present is limited to the purchse of privte finncil ssets on smller scle thn similr progrmmes dopted by the United Sttes Federl Reserve nd the Centrl Bnk of Jpn. B. Economic ctivity The GDP of the Ltin Americn nd Cribben region grew by 1.1% in 2014, its slowest rte of expnsion since Considerble differences were observed between countries, with the sluggish regionl rte lrgely determined by slow or negtive growth in some of the lrgest economies: Argentin (-0.2%), the Bolivrin Republic of Venezuel Executive summry 7

9 Economic Commission for Ltin Americ nd the Cribben (ECLAC) (-3.0%), Brzil (0.2%) nd Mexico (2.1%). The medin GDP growth rte for the region ws 2.8%, brodly in line with the 2013 figure. The region s fstest-growing economies were the Dominicn Republic nd Pnm (6.0% in both cses), followed by the Plurintionl Stte of Bolivi (5.2%), Colombi (4.8%) nd Guyn nd Nicrgu (both 4.5%). Argentin, the Bolivrin Republic of Venezuel nd Sint Luci contrcted by 0.2%, 3.0% nd 1.4%, respectively, while the other economies grew t rtes rnging from 0.5% to 4%. By subregion, South Americ posted economic expnsion of 0.7% (s ginst 2.8% in 2013), while Centrl Americ (including the Spnish-speking Cribben nd Hiti) expnded by 3.7% (4.0% in 2013). The Mexicn economy grew by 2.1% in 2014, compred with 1.1% in The Cribben economies likewise sw growth ccelerte on previous yers, reching 1.9% in The region s ptterns of economic ctivity vried throughout The regionl economy s decelertion becme more pprent in the second qurter, s investment declined in severl South Americn economies nd consumption, especilly privte consumption, wekened cross the bord. Growth picked up slightly in the third nd fourth qurters, however. Gross fixed cpitl formtion contrcted by lmost 3.0% in the region s whole, lthough gin with differences t the country level. Rtes of investment rose by more thn 5% in Colombi, Ecudor, Pnm, the Plurintionl Stte of Bolivi nd severl Centrl Americn economies, while declining in Argentin, the Bolivrin Republic of Venezuel, Brzil nd Chile. In Peru, gross fixed investment slowed shrply in comprison with previous yers. The performnce of gross fixed cpitl formtion in the region trnslted into drop in the investment rte. Mesured s percentge of GDP bsed on dollrs t constnt 2010 prices, the regionl investment rte dropped to 19.2% of GDP below the 2010 figure (19.8%) hving hovered t round 20.5% between 2011 nd C. Employment One significnt consequence of low economic growth ws wek job cretion, leding to shrper-thn-expected 0.4 percentge point fll in the urbn employment rte. However, despite wek job cretion, the urbn open unemployment rte edged down from 6.2% to 6.0%. Sluggish economic growth did not trigger rise in unemployment becuse the prticiption rte fell fster thn employment (by 0.6 percentge points). Until 2012, declining unemployment reflected fster rise in employment thn in prticiption, but since 2013 prticiption hs fllen more hevily thn employment. The lbour performnce of the region s countries ws rther mixed. The regionl outcome ws determined by similr trends posted in Argentin, Brzil nd Mexico, while vriety of results were observed in the other countries. Although job cretion hs been wek especilly in wge employment the lbour mrket sitution remins reltively benign. The open unemployment rte is t historiclly low levels, while other positive spects include widespred fll in the hourly underemployment rte, s well s rel wge increses (mesured t 1.3% ccording the weighted verge of 10 countries, or 1.8% by the simple verge of those countries). Nevertheless, slower job cretion is ffecting women more thn men, bringing n end to previous trends in which some gender lbour gps were nrrowing. D. The externl sector In 2014, the region s current ccount deficit esed down to 2.3% of GDP (2.6% in 2013), thus ending four-yer run of deficit expnsion. Executive summry Underlying this performnce lie fctors tht vry by subregion nd the destintions of ech country s exports. Mexico nd the Centrl Americn nd Cribben service-exporting countries benefited from the stedy economic recovery in the United Sttes, the min destintion for mny of their exports. The upturn in the United Sttes lbour 8

10 Preliminry Overview of the Economies of Ltin Americ nd the Cribben 2014 mrket lso underpinned surge in remittnces to Mexico, Centrl Americ (except for Cost Ric, where they fell by 1% yer-on-yer in the first hlf-yer) nd the Dominicn Republic. Conversely, South Americ felt the effects of slck demnd for its goods in Europe nd Chin, which resulted in stndstill or fll in export volumes in Brzil (0.1%), Chile (1.8%) nd Peru (-5.0%). Export volumes fell in Argentin nd stgnted in the Bolivrin Republic of Venezuel. At the sme time, wek lbour mrket conditions in emigrnt destintion countries eroded the remittnces flowing into severl South Americn countries. The combintion of these fctors produced flt performnce in goods nd services export vlues in 2014 (-0.1%), which ws little different from 2013 (0.3%). Import performnce, too, ws differentited by subregion. In South Americ, import volumes dropped shrply on the bck of hevy fll in domestic demnd, consumption nd investment in most of the countries. In Chile, import volumes plunged 7.8%, with the fll encompssing ll durble goods segments, including mchinery nd equipment. Imports were down, s well (in volume terms), in Brzil (-2.6%) nd Peru (-2.0%) s result of more sluggish spending. The volume of imports lso dropped shrply in Argentin (-9.9%) nd the Bolivrin Republic of Venezuel (-17.7%). Conversely, in Colombi, Mexico nd most of the Centrl Americn countries, import volumes continued to rise, lbeit more slowly thn in the pst, in keeping with their economic performnce. For Ltin Americ overll, import vlues were down by 1.1% for the first time since the interntionl finncil crisis of Prices for the region s rw mteril exports hve continued to slide. The terms of trde hve ccordingly continued to deteriorte, s well, nd were down by 2.6% in 2014 for the region overll, lthough with some differences from one country to nother. 1 Externl finncing hs continued to be redily vilble for the region, whose interntionl reserves thus rose gin. Although FDI ws down by between 25% nd 30% in 2014, reflecting the culmintion of mining investment cycles nd fewer cquisitions by foreign firms, portfolio investment, especilly in the form of externl bonds issued by the region, hs remined buoynt. These developments hve remined within the rnges of recent times, however, nd show no sign of the chnge in externl finncil conditions tht the end of the expnsionry monetry cycle in the United Sttes is expected to produce. The shift towrds portfolio investment within overll flows could signl future vulnerbilities, however, insofr s these flows re more voltile. E. Policies According to projections, Ltin Americ s fiscl blnce hs, on verge, deteriorted slightly in The subregion s primry deficit (before public debt interest pyments) is expected to stnd t 0.8% of GDP, nd the overll centrl government deficit will widen from 2.4% of GDP in 2013 to 2.7% of GDP in 2014, with drop in totl revenues nd slight upturn in public spending. The subregion s whole hs posted fiscl deficit since 2009, but this hs not pushed up public debt, which hs held stedy t bout 32% of GDP, with n externl component of less thn 15% of GDP. The Cribben should see n improved fiscl position in 2014, with the overll verge subregionl deficit t the centrl government level shrinking from 4.1% of GDP in 2013 to 3.9% of GDP in Jmic hs mde sizeble contribution to tht improvement s it brought down its debt by 4 percentge points of GDP within the frmework of its fiscl consolidtion progrmme. Nevertheless, the subregion s debt levels remin high t close to 80% of GDP on verge, with substntil externl component. Beyond the verges, the fiscl sitution in Ltin Americ nd the Cribben is diverse nd heterogeneous. Despite the wider deficit nd slowing economies, public debt hs not risen in generl. This pprent contrdiction is explined by very fvourble borrowing conditions in mny countries in the region, which hve led to improvements in the cost nd mturity profile of public debt in recent yers. Totl fiscl revenues fell in the oil-exporting countries nd tx revenues rose slightly in severl of the region s economies. The shrp fll in interntionl commodity prices drgged down the fiscl revenues of the commodity-exporting countries. Non-tx revenues were down by 1.8 percentge points of GDP in Mexico, nd by n verge of 0.7 points in 1 If the shrp fll in the price of oil recorded in November persists, the terms of trde of the oil-exporting countries will deteriorte further, while the countries tht import this resource will benefit.. Executive summry 9

11 Economic Commission for Ltin Americ nd the Cribben (ECLAC) the other oil-exporting countries. The metl- nd minerl-exporting countries lso reported drop in non-tx revenues (by 0.3 percentge points of GDP). The performnce of tx revenues in the Cribben diverged by type of exporter: they fell in countries tht export non-renewble nturl resources but climbed strongly in exporters of services, thnks to the economic upturn. Tx revenues lso performed fvourbly in Mexico nd Centrl Americ. On verge for Ltin Americ, non-tx revenues decresed nd tx revenues incresed. Despite the slowdown, the countries of the region were ble to mintin public spending nd investment s percentge of GDP. Cpitl spending lso held stedy or even incresed s shre of GDP in mny countries in It ws down in Centrl Americ nd the Dominicn Republic, however, s well s in the oil-exporting countries, which nevertheless especilly in the cses of Ecudor nd the Plurintionl Stte of Bolivi nd Ecudor kept up very high levels of public investment. In the Cribben nd in Brzil, the very hevy burden of interest pyments is stnding in the wy of more ctive fiscl mesures. On the monetry nd exchnge-rte front, countries in the region dopted clerly countercyclicl pproch in 2014, regrdless of policy regime. More emphsis ws plced on stimulting ggregte demnd nd setting nd monitoring medium-term infltion trgets. At the sme time, uthorities sought to mitigte the effects of externl voltility on the region s finncil mrkets by using interntionl reserves nd modifying mcroprudentil regultions. Those countercyclicl efforts led to reduction in lending rtes in the region s economies. However, growth in domestic credit to the privte sector slowed. In the South Americn economies tht use monetry ggregtes s the principl policy instrument nd in Brzil, domestic lending to the privte sector incresed despite high lending rtes. The previling conditions in interntionl finncil mrkets heightened exchnge-rte voltility in the region nd cused the deprecition of currencies under flexible exchnge-rte regimes. These exchnge-rte developments, together with the pce of infltion in the region s economies, resulted in n pprecition of the rel effective extrregionl exchnge rte, especilly in the economies of South Americ. In response to externl uncertinty, uthorities in the region drew on interntionl reserves nd mde chnges to mcroprudentil regultions in order to mitigte exchnge-rte voltility nd reduce the exposure of the region s finncil systems. Notwithstnding these mesures, reserves in Ltin Americ nd the Cribben, s whole, expnded from 14.0% of GDP in 2013 to 14.2% of GDP in Averge cumultive infltion in the 12 months to October 2014 stood t 9.4%, 2 compred with 7.6% in December Although most countries in the region recorded higher infltion reltive to 2013, there were significnt differences between them. The regionl verge ws driven up significntly by the sustined rise in officil infltion in Argentin nd the high rte of consumer infltion in the Bolivrin Republic of Venezuel. The rise in regionl infltion reflected both the rise in food prices nd higher core infltion. Food prices hve risen drmticlly since My Menwhile, core infltion 3 lso rose shrply in most countries in the first hlf of the yer. As regionl verge, food prices surged by 11.8% in the 12 months to October 2014 (compred with 9.3% in the 12 months to December 2013 nd 8.3% in 2012), while core infltion ws up by 9.1% in the 12 months to October 2014 (compred with 7.0% in the 12 months to December 2013). F. Outlook for 2015 nd chllenges In 2015 the globl economy is expected to continue expnding t moderte rte of bout 3.1%. As in 2014, the pce of growth in the developed countries will be mixed. Chin s 2015 growth is forecst t bout 7%, down from 7.3% in Projections indicte trend towrds moderte uptick in globl growth, but number of serious risks could threten tht outcome. In prticulr, its highly leverged economies cst doubt on the eurozone s bility to sustin growth. Infltion trends point to persistent risks of defltion nd low growth in tht prt of the world. In turn, the sitution in Jpn could cut into exports from neighbouring countries, especilly Chin, nd erode globl growth in Executive summry 2 The regionl figure is verge infltion cross the countries, weighted for their shre of the region s totl popultion. 3 Core infltion does not include food, beverge or fuel prices. 10

12 Preliminry Overview of the Economies of Ltin Americ nd the Cribben In ddition to economic fctors, geopoliticl elements, such s the situtions in Ukrine nd the Middle Est, could hurt growth in Beyond the uncertinty regrding the impct of globl economic conditions on the region s export potentil, there re other risks ssocited with commodity prices nd interntionl finncil dynmics. Certin commodity prices remin on confirmed downtrend. The World Bnk 4 projects tht verge energy prices (hydrocrbons) will come down by 4.6% in 2015, fter declining by n estimted 2.5% in 2014, lthough the price drop in lte 2014 could ultimtely increse the yer-on-yer fll. The prices of griculturl products (food) re expected to drop by 1.1% in 2015, compred with the 3.1% estimted for 2014, while metl prices will go up by 1.2%, fter flling by some 5.4% in In the finncil sphere, despite the uncertinties surrounding the withdrwl of monetry stimulus in the United Sttes, no mjor chnges or turmoil re expected in Although the Federl Reserve is expected to rise interest rtes towrds the end of the yer, United Sttes monetry policy will remin ccommodtive. The Europen Centrl Bnk is expected to mintin or expnd its quntittive esing progrmme in the eurozone. Globl economic conditions impct the countries nd subregions of Ltin Americ nd the Cribben in vriety of wys. Overll, the region is projected to grow t n verge of 2.2% in 2015, with rtes differing, s in 2014, between countries nd subregions: Centrl Americ, including the Spnish-speking Cribben nd Hiti, will post growth of 4.1%; South Americ, 1.8%; nd the English-speking Cribben, 2.2%. Stimulting economic growth nd reversing the slowdown poses brod chllenges for the region in the current globl conditions. Wek growth in the developed countries nd modest expnsion in the emerging economies, together with the post-crisis dynmics of world trde, suggest tht boosting the region s externl demnd will be slow nd difficult process, which will limit the contribution of exports to growth. Therefore, lthough interntionl trde remins source of opportunity, the region must redouble its efforts to build competitiveness in existing externl mrkets nd open up new ones. In this context, regionl integrtion processes cn help to boost ggregte demnd through trde integrtion. They cn boost productivity nd competitiveness through vlue chins nd the integrtion of production nd infrstructure. And, through finncil integrtion, regionl coopertion builds cpcity to withstnd externl shocks. Since the 2009 finncil crisis, domestic demnd hs been the min driver of growth in the region, while net exports mde negtive contribution to growth between 2010 nd Aginst this bckdrop, long with boosting its export potentil, the region must sustin nd increse domestic demnd to reverse the slowdown. Loss of momentum in investment key component of domestic demnd hs been one of the key fctors behind the slowdown in mny of the economies of Ltin Americ nd the Cribben. Tht is why the primry chllenge now fcing the region s countries in terms of boosting economic growth is to increse public nd privte investment rtes. Countries bility to promote public investment depends on their current fiscl position nd their cpcity to mobilize resources. As noted bove, on verge the region s fiscl deficit hs remined reltively stble nd its externl nd domestic public debt levels, with the exception of the Cribben, re reltively low. So, notwithstnding differences between countries, the region conceivbly hs the scope to expnd public investment with view to enhncing production cpcity nd competitiveness through infrstructure projects. This type of investment not only promotes productivity gins, but lso serves s n incentive for privte investment. In countries with higher levels of public debt or finncing difficulties, the weker public ccounts forecst for 2015 hve prompted nnouncements of budget cuts for the yer hed. Spending continment mesures should tke into ccount the need to protect investment nd void vicious circles whereby fiscl overdjustments strngle growth nd tx revenues, ultimtely widening the deficit nd incresing the public debt burden. Treting greter public or public-enterprise investment s centrl to boosting overll investment poses new chllenges in terms of countercyclicl rchitecture in Ltin Americ nd the Cribben. The region hs mde 4 Globl Economic Prospects, October Executive summry 11

13 Economic Commission for Ltin Americ nd the Cribben (ECLAC) good progress on countercyclicl policies to smooth public revenue flows in the event of cyclicl chnges in the sources of fiscl income. This development hs been crucil to sustining economic growth nd should be pursued further. At the sme time, the countercyclicl rchitecture needs to include mechnisms to ensure tht investment s n incresingly key vrible of economic performnce nd growth cn be finnced t the different phses of the cycle. Strengthening the investment component not only helps mobilize domestic demnd in the short term nd promote growth, but is lso the min bridge between the chllenges of the economic cycle nd medium- nd long-term growth nd development. In this context, development mcroeconomics should im not only to smooth economic cycles, but lso to enhnce production development nd structurl chnge by rmour-plting investment growth over time. Executive summry 12

14 Chpter I Interntionl context The world economy improved slightly in 2014, mid mixed performnce from developed countries nd slowdown in emerging economies. Globl economic growth incresed to 2.6%, compred with 2.4% in Trends were vried mong the developed countries. The United Kingdom stood out with economic growth ccelerting to 3.1% in 2014, up from 1.7% the previous yer. The United Sttes economy grew by 2.1%, slightly down on the 2013 figure of 2.2%, lbeit with second-hlf performnce tht bodes well for greter gins in Eurozone growth ws gin limited in 2014, with mrked contrsts between Germny nd Spin on the one hnd (which expnded by 1.5% nd 1.3% respectively) nd, on the other, Frnce, which posted growth of just 0.3%, nd Itly, which went into recession with downturn of 0.4%. Jpn showed signs of recovery in erly 2014, but slipped into recession towrds the end of the yer. Growth in developing economies continued to slow in 2014, while nevertheless remining fr more buoynt thn in the developed world. On verge, developing economies grew by n estimted 4.4% in 2014, with Chin s growth slowing from 7.7% in 2013 to 7.3% in 2014, nd Indi s rising to 5.4%, from 4.7% in 2013 see figure I.1. Figure I.1 Selected regions nd countries: GDP growth, (Percentges) World Developed countries United Sttes 0.6 0,5 0,7 Jpn Eurozone Developing countries Chin Source: Economic Commission for Ltin Americ nd the Cribben (ECLAC), on the bsis of United Ntions, Globl Economic Outlook, New York, Deprtment of Economic nd Socil Affirs, October Figures for 2014 re estimtes nd those for 2015 re projections. Chpter I 13

15 Economic Commission for Ltin Americ nd the Cribben (ECLAC) Consistently with these developments, the countries of Ltin Americ nd the Cribben hve seen externl ggregte demnd slump owing to the lcklustre performnce of developed economies nd the slowing of emerging ones, especilly Chin, which hs estblished itself s the min trding prtner for severl countries in the region, prticulrly those tht export rw mterils. In keeping with developments in the globl economy, the GDP of the Ltin Americn nd Cribben region s trding prtners outside the region expnded 2.9% in 2014, brely bove the previous yer s figure (2.8%). This prticulr indictor of externl demnd is still performing under the rte seen before the globl finncil crisis, nd more mrkedly so in South Americ, whose extrregionl trding prtners hve suffered steeper slowdowns in GDP (see figure I.2). Figure I.2 Ltin Americ nd the Cribben: economic growth in extrregionl trding prtner economies (Percentges) b Mexico nd Centrl Americ South Americ The Cribben Averge for Mexico nd Centrl Americ Averge for South Americ Averge for the Cribben Refers to the verge GDP growth rtes of export destintion economies, weighted by their shre in the region s extrregionl exports in b Projections. As figure I.3 shows, rw mteril prices resumed downwrd trend in 2014, especilly in the second hlf of the yer, lbeit with vritions from one commodity to nother. The estimted verge price fll for the group of rw mterils steepened to 10.5% in 2014, from 5.2% drop in The price of metls fell by 2.3% in 2014, hving tumbled by 16.7% in Food prices were down by bout 6.9%, compred with 15.5% fll in 2013; while energy prices plunged by some 17%, following 4.6% climb in Figure I.3 Index of interntionl commodity prices, weekly vlues, Jnury 2013 to November 2014 (Bse vlue t Jnury 2013=100) Chpter I Jn Feb Mr Apr My Jun Jul Aug Sep Oct Nov Dec Jn Feb Mr Apr My Jun Jul Aug Sep Oct Nov Metls Foods Commodities Energy Source: Economic Commission for Ltin Americ nd the Cribben (ECLAC), on the bsis of Bloomberg nd JP Morgn Commodity Index. 14

16 Preliminry Overview of the Economies of Ltin Americ nd the Cribben 2014 Within the region s min export commodities, food prices wekened by 4.8% on verge yer-on-yer in the first nine months of 2014, with verge price flls for mize (-28.5%), owing to supply surplus, nd sugr (-2.3%) owing to overproduction. A good hrvest in Argentin nd Brzil even s demnd slckened in Chin led to slump in prices for soyben (-5.9%) nd relted products, which trnslted into price drop of 5.3% for the oil nd oilseed ctegory overll. Tropicl beverge prices rose shrply in the first nine months of 2014 (27.2% yer-on-yer on verge), minly becuse of the effects of coffee blight in Centrl Americ nd Mexico nd drought in Brzil erly in the yer. Prices for minerls nd metls fell hevily (-12.9%) over the first three qurters, chiefly reflecting slowdowns in construction nd mnufcturing in Chin, one of the world s lrgest buyers of these products. Oil prices rose slightly in the first hlf of 2014 (2.7% between December 2013 nd June 2014), but then fell by hefty 30% between June nd November. On verge for the yer overll, oil prices will be down by some 3%-4% on 2013, s demnd hs stgnted in the Europen Union nd Chin nd fllen in some of the emerging economies, mid stble supply by producer countries nd incresed production from non-conventionl sources in the United Sttes. Despite the price fll, the Orgniztion of Petroleum Exporting Countries (OPEC) decided ginst cutting oil production t its November 2014 meeting. Liquidity in interntionl finncil mrkets remined reltively high, thnks to the ccommodtive monetry policy of the min developed economies, s well s low risk perception. Interest rtes remined low, while the withdrwl of monetry stimulus mesures in the United Sttes did not led to interest rte increses, but cused some voltility in finncil flows during The Europen Centrl Bnk lunched progrmme of quntittive esing, which t present is limited to the purchse of privte finncil ssets on smller scle thn similr progrmmes dopted by the United Sttes Federl Reserve nd the Centrl Bnk of Jpn. Chpter I 15

17

18 Chpter II Economic ctivity The GDP of the Ltin Americn nd Cribben region grew by 1.1% in 2014, 1 which ws the slowest rte of expnsion since 2009 nd trnslted into stndstill in regionl per cpit GDP. The sluggish regionl performnce ws lrgely determined by slow or negtive growth in some of the lrgest economies: Argentin (-0.2%), the Bolivrin Republic of Venezuel (-3.0%) nd Brzil (0.2%). Nevertheless, there were substntil differences in growth rtes from one country to nother. The region s fstest-growing economies were the Dominicn Republic nd Pnm (6.0% in both cses), followed by the Plurintionl Stte of Bolivi (5.2%), Colombi (4.8%), Nicrgu nd Guyn (4.5% in both cses), then Ecudor, Guteml nd Prguy (ll 4.0%). Chile nd Peru were two of the economies tht slowed most hevily, with growth rtes of 1.8% nd 2.8% respectively. The Mexicn economy grew by 2.1% in 2014, up from the 1.1% recorded in With the exception of Sint Luci, whose economy contrcted by 1.4%, the other economies grew t rtes rnging from 0.5% to 4.0%. By subregion, South Americ posted economic expnsion of 0.7% (s ginst 2.8% in 2013), while Centrl Americ expnded by 3.7% (4.0% in 2013). The Cribben economies (not including Cub, the Dominicn Republic or Hiti) posted growth of 1.9%, stronger rte thn in previous yers nd the highest since 2008 (see figure II.1). The region s economic growth is expected to pick up in 2015, with GDP growth of 2.2%, thnks to vriety of fctors. First, domestic demnd nd especilly gross fixed cpitl formtion in severl South Americn countries is projected to rise, fter the downturn in 2014, driven by public or Stte-driven investment in infrstructure. Economic ctivity in Mexico nd most of the Centrl Americn economies should gther (or, in some cses, mintin) momentum thnks to rising demnd from the United Sttes, still strong migrnt remittnces nd fster growth in tourism on the bck of growth in severl developed economies which re mjor sources for tht industry in the subregion. The pttern of economic ctivity ws differentited in the region throughout The slowdown took firmer hold in the second qurter, s investment contrcted in severl South Americn economies nd consumption wekened cross the bord. The third qurter brought the beginnings of n upturn in economic ctivity which crried over into the fourth qurter, but ws not enough to offset the poor showing of the first three qurters or to regin the rte from erly in the yer (see figure II.2). The lcklustre regionl growth my be ttributed in lrge prt to slowdown in privte consumption which, in turn, reflected stgnnt job cretion nd slower rel wge growth (owing to higher infltion in most of the countries) nd slcker credit growth in the finncil system. Furthermore, gross fixed cpitl formtion contrcted s the construction sector lost momentum or even went into decline, nd investment in mchinery nd equipment fell cross the bord. 1 The medin GDP growth rte for the region ws 2.8%, brodly in line with the 2013 figure. Chpter II 17

19 Economic Commission for Ltin Americ nd the Cribben (ECLAC) Figure II.1 Ltin Americ nd the Cribben: GDP growth rtes, 2014 (Percentges on the bsis of dollrs t constnt 2010 prices) A. Ltin Americ Pnm Dominicn Republic Bolivi (Plur. Stte of) Colombi Nicrgu Prguy Guteml Ecudor Centrl Americ Cost Ric Hiti Uruguy Hondurs Peru El Slvdor Mexico The Cribben Chile Cub Ltin Americ nd the Cribben South Americ Brzil Argentin Venezuel (Bol. Rep. of) B. The Cribben Guyn 4.5 Surinme Belize Sint Kitts nd Nevis Antigu nd Brbud Bhms Sint Vincent nd the Grendines The Cribben Trinidd nd Tobgo Grend Jmic Dominic Brbdos 0.0 Sint Luci The figures for 2014 re projections. Gross fixed cpitl formtion contrcted by lmost 3.5% in the region s whole, lthough gin with differences t the country level. Gross fixed cpitl formtion rose by more thn 5% in Colombi, Ecudor, Pnm, the Plurintionl Stte of Bolivi nd severl Centrl Americn economies, but brely grew or even contrcted in Argentin, the Bolivrin Republic of Venezuel, Brzil, Chile nd Mexico. In Peru, gross fixed investment slowed shrply in comprison with previous yers, s privte investment fell nd public investment expnded only minimlly. Fctors in the downturn in gross fixed cpitl formtion in the region were expecttions of lower externl demnd for rw mterils, especilly metls nd minerls, nd rise in operting costs in lrge-scle mining projects. This ws in ddition to the culmintion of some investments in mining nd infrstructure nd, in some cses, finncing constrints. The performnce of gross fixed cpitl formtion in the region trnslted into drop in the investment rte. Mesured s percentge of GDP bsed on dollrs t constnt 2010 prices, the regionl investment rte dropped to 19.2% of GDP below the 2010 figure (19.8%) hving hovered t round 20.5% between 2011 nd Net exports mde positive, lbeit slight, contribution to regionl growth, since exports of goods nd services posted stronger growth (round 3.0%) thn in 2013 (1.6%). The upturn in exports ws strongest in Mexico nd some Centrl Americn economies, which benefited from the economic upturn in the United Sttes nd recovery in tourism, n importnt source of foreign exchnge for these countries. Imports of goods nd services stgnted in rel terms, reflecting slower growth in privte consumption nd the contrction in gross fixed cpitl formtion (see figure II.3). Chpter II 18

20 Preliminry Overview of the Economies of Ltin Americ nd the Cribben 2014 Figure II.2 Ltin Americ nd the Cribben: yer-on-yer chnge in qurterly GDP, (Percentges on the bsis of dollrs t constnt 2010 prices) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q The figure for the fourth qurter of 2014 is n estimte. Figure II.3 Ltin Americ: GDP growth rte nd contribution to growth by the components of domestic demnd nd net exports, (Percentges nd percentge points, on the bsis of dollrs t constnt 2010 prices) Investment Net exports Consumption GDP Chpter II The figures for 2014 re projections. By sector of economic ctivity, the slowdown in privte consumption led to slcker growth in the commerce, hotels nd resturnts sector, despite stronger growth thn in 2013 in tourist rrivls in the region. The griculturl sector performed unevenly from one country to nother, suffering the effects of dverse climte conditions in Argentin, Brzil nd Nicrgu, but growing t rtes well bove the regionl verge in Cost Ric, the Dominicn Republic nd Prguy. Mining nd drilling ctivity ws lso uneven mong the countries: in Brzil, Ecudor, the Dominicn Republic nd Guteml the sector grew strongly, thnks to incresed oil production in the first two countries nd new mining projects coming on strem in the ltter two. In Peru, however, the sector posted slight contrction, with incresed hydrocrbon production insufficient to offset downturn in mining output. The mining nd drilling sector contrcted in Mexico, s well, owing to fll in oil production. In Chile, the sector expnded slightly thnks to rise in iron ore nd col production. Mnufcturing, too, delivered modest performnce overll in 2014, contrcting in severl countries (Argentin, the Bolivrin Republic of Venezuel, Brzil nd Chile), nd posting stronger performnce in Mexico. The construction sectors contrcted slightly t the regionl level, nd more shrply in some South Americn economies, despite rpid rtes of expnsion in Colombi, the Dominicn Republic, Pnm nd Prguy. Growth in the services sector vried from country to country, in line with economic ctivity overll. Although prices fell throughout 2014 for mny of the commodities exported by the region, which hurt terms of trde, the net food- nd fuel- importing countries benefited from these interntionl price trends. The combintion 19

21 Economic Commission for Ltin Americ nd the Cribben (ECLAC) of the two ptterns resulted in net terms-of-trde gin for the yer overll, lbeit much smller one thn in the three preceding yers. Net pyments brod lso declined slightly over the yer, reflecting lower remittnces of profits nd dividends by non-resident firms nd higher current trnsfers s emigrnt remittnces sw n upturn in Mexico nd rose stedily in severl Centrl Americn countries. As result, gross ntionl disposble income trended upwrds (0.8%), lthough more slowly thn GDP (see figure II.4). Figure II.4 Ltin Americ: nnul growth in GDP nd gross ntionl disposble income, (Percentges, on the bsis of dollrs t constnt 2010 prices) A. Ltin Americ B. South Americ E. Mexico Chpter II C. Centrl Americ D. Brzil GDP Gross ntionl disposble income The figures for 2014 re projections. 20

22 Preliminry Overview of the Economies of Ltin Americ nd the Cribben 2014 Slower growth in gross ntionl disposble income led to loss of momentum in ntionl sving t the regionl level, which ws down on 2013 in GDP terms. In current dollrs, the region s ntionl sving ws 17.1% of GDP (compred with 18.1% in 2013), significntly lower thn the 22% chieved in Externl sving ws lso down (from 2.6% of GDP in 2013 to 2.4% in 2014). As result, Ltin Americ s gross cpitl investment declined by one percentge point, from 20.7% of GDP in 2013 to 19.5% in 2014 (see figure II.5). Figure II.5 Ltin Americ: finncing of gross domestic investment, (Percentges of GDP, on the bsis of current dollrs) Chpter II Externl sving Gross ntionl sving Gross domestic investment The figures for 2014 re projections. 21

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24 Chpter III Domestic prices Cumultive 12-month infltion in the Ltin Americn nd Cribben region 1 ws 9.3% to October 2014, compred with 7.6% in December Infltion rose bove the 2013 figure in most of the countries, but with significnt differences between them. The regionl figure is hevily influenced by the stedy rise in officil infltion reported by Argentin ( cumultive figure of 21.3% in the first ten months of the yer), nd the high rte of consumer infltion in the Bolivrin Republic of Venezuel, which reported cumultive rte of 39% in the first eight months. In the ltter cse, the stedy rise in consumer prices reflects shortges, s well s the impct of ntionl currency deprecition on domestic prices nd rpid growth of monetry ggregtes. Argentin begn to publish new list of ntionl urbn consumer prices in 2014, to replce the consumer price index of the Greter Buenos Aires Province, nd consumer infltion rtes rose. Infltion cme in t 8.1% in the 12 months to October 2014 in Uruguy, nd 9.0% nd 7.8%, respectively, in the 12 months to September in Jmic nd Trinidd nd Tobgo. Consumer infltion ws lowest in El Slvdor (1.9%), Bhms (1.0%), Belize (0.7%) nd some economies of the Estern Cribben Currency Union. By subregion, South Americ posted the highest verge rte, t just under 12%, with Centrl Americ nd Mexico posting lower rtes. Severl economies in the Cribben lso sw infltion rise over the December 2013 figure (see figure III.1). The higher regionl infltion figure reflected rise in both food prices nd core infltion. Food infltion ticked up shrply s of My 2014 nd exceeded overll infltion, except in Argentin, Brbdos, Belize, Cost Ric, Hiti, Pnm, Prguy, Plurintionl Stte of Bolivi nd Sint Luci. Core infltion 2 incresed in most of the countries in the first hlf of the yer. In the regionl verge, food prices were up by 11.8% in the 12 months to October 2014 (s ginst 9.3% cumultive rise in the 12 months to December 2013 nd 8.3% in 2012), while core infltion rose 9.1% in the 12 months to October 2014, compred with 7.0% in 12 months to December 2013 nd 5.1% in 2012 (see figure III.2). By country, the highest infltion rtes in the 12 months to October 2014 were posted in the Bolivrin Republic of Venezuel (91%), 3 Argentin (20.6%), 4 Trinidd nd Tobgo (15.7%), Jmic (12.5%), Chile (10.1%), Nicrgu (10.2%) nd Uruguy (9.9%). In Mexico nd some Centrl Americn nd Cribben countries, food infltion to October 2014 rn t between 2 nd 5.2 percentge points bove generl infltion, in reversl of the pttern in the first hlf of the yer, when food prices rose more slowly thn consumer prices overll. The behvior of food nd core infltion is reflected in the pttern of goods nd services prices in the region. As figure III.3 shows, wheres services prices quickened throughout the yer, infltion in goods prices rose mostly from the second qurter on, driven by the uptick in food price infltion. 1 The regionl figure is verge infltion cross the countries, weighted for their shre of the region s totl popultion. 2 Core infltion does not include food, beverge or fuel prices. 3 Dt refer to August 2014 compred with August Dt issued by the Ntionl Institute of Sttistics nd Censuses (INDEC) for the consumer price index of the Greter Buenos Aires Province (IPC-GBA) (2013 dt) nd for the ntionl urbn consumer price index (IPCNu) published since Jnury 2014 were used to clculte the 12-month infltion figure to October 2014 for foods nd beverges. Chpter III 23