Will Trump Block Latin America’s Recovery?

NEW YORK – Across Latin America, there is a growing sense of anguish that is reminiscent of Michael Corleone’s lament in The Godfather III: “Just when I thought I was out, they pull me back in.” At a time when the region seemed finally to be grasping economic recovery, Donald Trump's inauguration as President of the United States has brought new trade and financial uncertainties to Latin America.

This year, Latin America is expected to emerge from the recession that began in 2015; but it will still experience a fourth consecutive year of anemic growth – or the sixth, if one counts the slowdown that was already evident in 2012 and 2013. Trump’s declarations on topics ranging from tariffs to the construction of a border wall have already affected some investments in Mexico, and sent the peso plummeting.

Domestic factors will also hinder growth in Latin America. Venezuela’s ongoing political and economic crises are the most important, but not the only, example. Brazil’s crises seemed to have ended in 2016, but the economy is not yet positioned for a strong recovery from its worst-ever recession. Argentina, for its part, is still fighting high inflation and fiscal deficits. And Ecuador has been saddled by falling oil revenues and dollarization in a region where most countries have already depreciated their currencies.

Chile, Colombia, and Uruguay remain on a slow-growth trajectory as well. Among the region’s large and medium-size economies, only Peru’s is recovering – but at a much slower rate than during the last commodity “super cycle.” Overall, the only ones that seem to be resisting the negative trend are some small economies of South America (namely, Bolivia and Paraguay), Central America, and the Dominican Republic.