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International Monetary Fund

Abstract

Global activity strengthened in the second half of 2013 and is expected to pick up further in 2014–15, on account of a faster recovery in the advanced economies. In contrast, the growth momentum in emerging markets remains subdued, reflecting tighter external financing conditions and homemade weaknesses in some cases. Risks around the outlook for global growth have diminished somewhat, but remain tilted to the downside.

International Monetary Fund. Western Hemisphere Dept.

Abstract

Global growth remains modest and uneven. Following a setback in early 2015, the pace of global activity rebounded but the growth outlook remains subdued over both short and longer horizons. Western Hemisphere economies figured prominently in these developments and trends. In the United States, following a slow start this year, renewed momentum in the recovery was underpinned by resilient consumption and labor markets, but Canada continued to lose momentum in the wake of lower oil prices. Elsewhere, regional growth will turn slightly negative, against a backdrop of weaker commodity prices, tightening financial conditions, domestic headwinds, and dampened medium-term prospects. Risks to the outlook are tilted to the downside, including possible stagnation in advanced economies coupled with reduced potential growth in emerging markets. Policies to raise potential thus remain a priority in many economies, with investment and structural reform being crucial, including within the region.

International Monetary Fund

Abstract

Economic activity in Latin America and the Caribbean (LAC) is expected to remain relatively subdued in 2014. While the faster recovery of the advanced economies should strengthen external demand, this effect is likely to be offset by the negative impact of lower commodity prices and tighter financial conditions on domestic demand. Policy priorities include strengthening public finances, addressing potential financial fragilities, and implementing structural reforms to ease supply-side constraints and raise potential growth.

International Monetary Fund. Western Hemisphere Dept.

Abstract

Economic activity in Latin America and the Caribbean (LAC) is undergoing a protracted slowdown, in tandem with weaker underlying fundamentals. Growth is projected to decline again in 2015, turning negative before rebounding modestly in 2016. Externally, renewed weakness in commodity prices has further deteriorated the region’s terms of trade, reflected in widening current account deficits, exchange rate depreciation, and weakening investment. Financial market strains have also risen to varying degrees, with retreating capital flows placing additional downward pressure on currencies, thus testing the credibility of existing policy frameworks. Domestically, headwinds to growth owing to country-specific factors are also mounting. Policy responses depend on country circumstances, including the depth of the downturn and degree of domestic rigidities. Some countries have already embarked on policy adjustment, but others will need to tighten policies further to address fiscal or external sustainability concerns. Net commodity importers can use the breathing room from lower commodity prices to deepen fiscal adjustment. Exchange rate flexibility remains instrumental for external adjustment, while structural reforms are crucial to address low trend growth.

International Monetary Fund

Abstract

A stronger U.S. recovery will impart a positive impulse primarily to Mexico, Central America, and the Caribbean, whereas the anticipated normalization of U.S. monetary policy will affect all countries in Latin America and the Caribbean (LAC). Traditional exposures to U.S. interest rates have diminished, as governments in LAC have reduced their reliance on U.S. dollar–denominated debt. However, U.S. monetary shocks also spill over into local funding and foreign exchange markets. Spillovers to domestic bond yields have typically been contained over the past decade, but the market turmoil of mid-2013 illustrates the risk of outsized responses under certain conditions. In a smooth normalization scenario, net capital inflows to LAC are unlikely to reverse, although new risk premium shocks could trigger outflow pressures. Countries cannot fully protect themselves against such external shocks, but strong balance sheets and credible policy frameworks provide resilience in the face of financial volatility.

International Monetary Fund. Western Hemisphere Dept.

Abstract

While Latin America experiences a sharp economic slowdown, a stronger U.S. economy is setting the stage for the Federal Reserve to continue normalizing its monetary stance. This chapter quantifies the likely impact and possible risks for domestic financial conditions in Latin America, and explores to what extent its central banks will be able to keep rates aligned with domestic objectives. It also sheds light on the policies that can serve to enhance monetary autonomy in the future.

International Monetary Fund

Abstract

This chapter takes another look at the commodity boom experienced by Latin America and the Caribbean (LAC) since the early 2000s and analyzes how the region will be affected by a more subdued outlook for commodity prices. The analysis suggests that growth in the years ahead could be significantly lower than during the commodity boom even if commodity prices were to remain stable at their current relatively high levels. The results caution against trying to offset the current economic slowdown with demand-side stimulus and underscore the need for ambitious structural reforms to secure strong growth over the medium term.