Latin America is projected to post lower growth in 2015
Latin America is projected to post a lower GDP growth of 0.5% in 2015, according to the Economic Survey released by ECLAC (Economic Commission for Latin America and caribbean of the UN) on 29 July. This is the lowest growth since the decline started in 2011 after the boom period of 2003-10.
Panama is expected to have the highest growth of 6% followed by Dominican Republic and Nicaragua with 4.8% each and Bolivia with 4.5%. Mexico's growth projection is 2.4%, Colombia's 3.4%, Argentina 0.5% Peru 3.9% and Chile 2.5%. Brazil is likely to face a GDP contraction of -1.5% and Venezuela –5.5%.
South America is expected to contract by 0.4% but Central America and Mexico are likely to expand by 2.7%. South America which is more dependent on commodity exports has suffered mainly due to the slow down of the Chinese economy. On the other hand, Mexico and Central America which are aligned more to the US market have benefitted from the increase in the growth of US.
The main reasons for the low growth are the fall in demand and prices of commodities, the slowdown in domestic consumption, investment and manufacturing.
The growth rate in 2015 has come down from 1.1% in 2014 and it is the lowest since the decline started after its peak of 5% in 2010. This corresponds to the trend of fall in demand and prices of commodities including oil, metals and agroproducts since 2011.
The total GDP of the 20 Latin American countries reached 6.172 trillion dollars in 2014 doubling from 3.2 trillion in 2006.
Average inflation of LAC region reached a decade-high level of 9.5% in 2014 from 7.6% in 2013. The lowest rate was 4.6% in 2009. Venezuela and Argentina are the only countries with double digit inflation. Venezuela had the highest inflation of 68.5% in the region. Even Brazil is struggling with inflation which was 8.5% in May 2015.
Despite the low growth, the unemployment rate in the LAC region reached its lowest level of 6% in 2014 declining from 8.1 % in 2009. It has been under 7% since 2011.
The total external debt of Latin America has increased to 1.385 trillion dollars in 2014 doubling from 738 billion in 2006. However, the ratio of gross external debt to GDP in 2014 was a manageable 24.5%. This is way below the situation of many developed countries including US and Germany.
The exports of the region fell in 2014 to 1.083 trillion dollars from 1.116 trillion in 2013. The imports have also gone down to 1.091 trillion in 2015 from 1.104 trillion in 2014.
The trend of fall in trade is likely to persist in 2015 too.
Net Foreign Direct Investment (FDI) of Latin America in 2014 was 135.43 billion dollars, an impressive fourfold increase from just 30.96 billon in 2006.
Gross international reserves of Latin America have reached a high of 828.96 billion in May 2015, having steadily increased from 639.79 billion in 2006. This has given extra strength and cushion to the policy makers to be prepared for external shocks. Venezuela has however seen dwindling of its reserves to 17 billion, its lowest level in the last decade.
The Indian business need not be discouraged by the lower growth of the region. There are many overall macroeconomic indicators of the region which are positive. The economies of the region have developed resilience and have the capacity to accelerate growth in the coming years. India's trade with the region continues on its trajectory of growth. It can reach 100 billion dollars by 2020 from 43 billion in 2014-15. The good news is that the Latin Americans have started paying more attention to India after the slow down of the Chinese market.