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Secular Stagnation Heads South

An extraordinarily benevolent external environment sustained rapid GDP growth in Latin America in the years following the 2008-2009 global economic crisis. But now, as commodity prices fall and the Fed’s gradual exit from quantitative easing boosts US interest rates, the region’s economies could be facing a long-term slowdown.

SANTIAGO – As commodity prices come back to earth and the Federal Reserve’s gradual exit from quantitative easing leads to higher interest rates in the United States, Latin America’s economies face the challenge of sustaining growth. The region’s main economies recorded slower GDP growth in 2013, and much the same is being forecast for 2014.

It is pretty clear by now that an extraordinarily benevolent external environment, not a revolutionary policy shift, underpinned Latin America’s rapid growth in the years following the 2008-2009 global economic crisis. As long as the price of soy, wheat, copper, oil, and other raw materials remained stratospheric, commodity-rich countries like Brazil, Chile, and Peru got a tremendous boost; even Argentina grew rapidly, despite terrible economic policies.

But now “secular stagnation” – the concept du jour in US policy debates since former Treasury Secretary Larry Summers argued last November that the US (and perhaps other advanced economies) has entered a long period of anemic GDP growth – may also be coming to Latin America.

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