Latin America’s Barriers to Growth
Although Latin America is expected to emerge from its recession this year, it is not out of the woods yet. To sustain strong growth over the long term, most countries in the region will need to undergo structural reforms and train their workers for employment in the formal economy.
CARACAS – Latin America is expected to emerge from recession this year. But the region should not be overly optimistic. While economic growth is rebounding, it remains below 2%, on average. And in a global environment plagued by uncertainty, the balance of risks is not tilted in Latin America’s favor.
The region’s economy is highly sensitive to global developments. In past decades, external tailwinds underpinned high growth rates; now, external headwinds are hampering growth for a second consecutive year, such that Latin America is underperforming any other emerging region.
Still, 2017 will be better than 2016, when economic performance suffered as a result of China’s slowdown and anemic recoveries in most advanced economies. Fears that Chinese GDP growth would continue to decelerate created shockwaves in financial markets and drove down commodity prices and asset prices in emerging markets. And while investors’ concerns dissipated somewhat as China’s economy stabilized over the course of the year, capital still continued to flee emerging markets for safer havens.