By Odeen Ishmael
Latin American and Caribbean economies will grow just 0.2 percent in 2016, according to new projections made in early January by the Chile-based Economic Commission for Latin America and the Caribbean (ECLAC). In its annual report, “Preliminary Overview of the Economies of Latin America and the Caribbean 2015,” the commission reiterated its call to the countries of the region to involve more investment and productivity in order to stimulate growth.
Dr Odeen Ishmael, Ambassador Emeritus (retired), historian and author, served as Guyana’s ambassador in the USA (1993-2003), Venezuela 2003-2011) and Kuwait (2011-2014). He actively participated in meetings of UNASUR from 2003 to 2010 and has written extensively on South American integration issues.
As in previous years, external conditions have variable effects in the region, which will again show marked differences in 2016. ECLAC predicts that Central America is expected to grow around 4.3 percent; South America’s GDP will shrink by minus 0.8 percent, mainly due to the expected contractions in Brazil (minus 2.0 percent) and Venezuela (minus 7.0 percent); while the English-speaking Caribbean will grow 1.6 percent.
The report indicates that in 2016 Latin American and Caribbean countries will encounter “diverse scenarios and risks” associated with the global economy, all of which will affect their economic performance. Global growth, it forecasts, will remain slow at 2.9 percent, while China -- one of the region’s top trading partners -- will slow down to 6.4 percent.
Further, the report states, the region will face uncertainty in its international trade since the prices of the region’s export commodities will remain low. This obviously means that the region -- especially those countries that export hydrocarbons and minerals -- will, as in 2015, again experience a deterioration in its terms of trade in 2016.
ECLAC also explains that the financial volatility and uncertainty observed in 2015 will persist this year, meaning that some emerging economies will continue to face difficulty obtaining resources in international markets. Added to this, will be the impacts from the steady appreciation of the dollar and the rise in United States interest rates.
According to ECLAC’s forecast, percentage-wise Panama will lead regional growth with 6.2; followed by Dominica and the Dominican Republic (5.2); Saint Kitts and Nevis (4.7); Bolivia (4.5); Nicaragua 4.3; Cuba 4.2; and Guatemala 4.0. Among others, GDP growth in Guyana as well as in Peru is expected to reach 3.4; Costa Rica and Honduras 3.3; Colombia and Paraguay 3.0; Belize 2.7; Mexico 2.6; Haiti 2.5; Bahamas, El Salvador and Suriname 2.4; Chile 2.1; Jamaica and Uruguay 1.5; Argentina 0.8; Trinidad and Tobago 0.6; Barbados 0.5; and Ecuador 0.3.
In contrast with these figures, the US-based Stratfor Global Intelligence, in its October 2015 analysis, said that Ecuador and Argentina would face negligible and potentially negative growth for 2016. It explained that like Venezuela, Ecuador, extremely dependent on oil revenues for its economic survival, would have a marginal 0.1 percent growth in 2016. Argentina’s growth, it said, would be similarly negligible, at 0.4 percent growth in 2015 and 0.7 percent contraction in 2016. A recent report of the International Monetary Fund (IMF) goes further in stating that Venezuela’s economy will contract by 18 per cent, the third sharpest decline in the world.
The preliminary overview provides details of ECLAC’s forecast for each country in the region. For Guyana, it says that economic growth slowed to 0.7 percent in the first half of 2015, which it attributes largely to declines in bauxite and gold output and in construction activity, owing to an appreciable fall in public sector spending. It adds that the country currently faces the challenge of maintaining the high levels of economic growth achieved in recent years, in the face of low commodity prices. However, it predicts GDP growth to rise to 3.4 percent in 2016 as a result of expected increased public sector investment and what it feels will be greater output in mining, agriculture, manufacturing and services sectors. How this expected growth will impact on real economic development, no doubt, will be determined as the year progresses.
For Trinidad and Tobago, ECLAC explains that the rapid fall in oil prices has severely affected the real, fiscal and external sectors of the economy with the result that the economy is expected to grow by 0.6 percent in 2016.
The report also touches on the impact of inflation on some South American economies. Indeed, high inflation levels in some countries, such as Venezuela, Brazil and Haiti, have severely undermined household disposable income. Actually, inflation poses a grave concern for Venezuela where the IMF says the rate will escalate to 700 percent this year following an estimated rise of 275 percent last year. The Venezuelan government disputes these IMF figures and insists that inflation was 142 percent at the end of September 2015.
Climatic factors such as heavy flooding and drought conditions will also raise the prices of agricultural produce, while at the same time influence a population shift from rural areas to urban centers in some of the higher populated countries.
As the title of the ECLAC report indicates, its forecast is “preliminary” and it is possible that the commission’s mid-year assessment will show some variations. The current report does not take into full consideration the continued freefall of oil prices at the beginning of 2016, which obviously is forcing the larger oil and gas producing countries like Venezuela, Brazil, Bolivia, Ecuador and Trinidad and Tobago to restructure their national budgets and economic planning for 2016 and beyond, unless they experience a boon of an upward trend in oil prices -- a situation which remains unpredictable at this time.
Smaller regional economies as well continue to face a decline in prices for their agricultural and mineral exports and the effects could mean a scale back in some industries which can lead to redeployment of workers and even more unemployment. On the other hand, public and private investment in the building industry, manufacturing and infrastructure may help to offset some of these negative aspects. All of these factors, along with any continuation of climatic setbacks, can have one way or the other an immense influence on GDP growth in the region.