América Latina

Latin America and the Caribbean: Lower Growth, Rising ChallengesAlejandro Werner | 2014

A AMÉRICA LATINAE AS NOVAS CONDIÇÕESECONÔMICAS MUNDIAIS

seminário

Latin America and

the Caribbean:

Lower Growth, Rising

Challenges

Alejandro Werner

Director, Western Hemisphere Department

September 19, 2014

The global recovery remains relatively

subdued

Selected Projections for Real GDP Growth

(Percent)

2012 2013 2014 2015

World 3.5 3.2 3.4 4.0

Advanced Economies 1.4 1.3 1.8 2.4

Euro Area -0.5 -0.4 1.1 1.6

United States 2.8 1.9 1.7 3.0

Japan 1.4 1.5 1.6 1.1

Emerging Market and Developing Economies 5.1 4.7 4.6 5.2

Asia 6.7 6.6 6.4 6.7

Europe 1.4 2.8 2.8 2.9

Latin America and the Caribbean 2.9 2.6 2.0 2.6

Source: IMF, World Economic Outlook July 2014 Update.

U.S. growth is expected to remain solid, after a

temporary setback in Q1

2014Q2 rebound after

temporary setback in Q1

Signs of firming recovery

continue to accumulate

U.S. economy projected to

grow at 3+ percent in 2014H2

-4

-3

-2

-1

0

1

2

3

4

5

2013Q2 2013Q3 2013Q4 2014Q1 2014Q2

Government consumption and investment

Personal consumption expenditure

Net exports

Change in private inventories

Non-residential investment

Residential investment

Real GDP

growth

USA: Contributions to GDP Growth

(Percent change from previous quarter)

Investment and housing are key drivers of

the economic rebound in the United States

800

900

1.000

1.100

1.200

4.500

4.700

4.900

5.100

5.300

5.500

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

Housing Starts (RHS)

Total Existing Home Sales (LHS)

Housing Activity

(SAAR, thousand units)

-30

-20

-10

0

10

20

30

-20

-15

-10

-5

0

5

10

15

2000 2003 2006 2009 2012 2015

Business Investment (LHS)

Duke CFO Survey: Expected Capital Spending (12 mo.

ahead, LHS)

Philly Fed Survey: Expected Capital Spending (6 mo.

ahead, RHS)

Leading Indicators of Capital Spending

(Percent change, year ago)

Labor market slack has declined, but remains

sizeable, keeping wage pressures in check

0

2

4

6

8

10

12

14

16

18

1994 1998 2002 2006 2010 2014

Part-time for economic reasons

Marginally attached

Long-term unemployed

Short-term unemployed

Labor Market Slack: Components of U-6

Unemployment Rate

(Percent of labor force)

0

1

2

3

4

5

2008 2009 2010 2011 2012 2013 2014

Employment Cost Index

Average hourly earnings

Compensation per hour (6-quarter moving average)

Nominal Wages

(Percent, year-on-year)

Recent euro area activity data have disappointed,

while inflation has continued to grind lower…

0,0

0,5

1,0

1,5

2,0

2,5

3,0

jan

/12

ab

r/12

jul/

12

ou

t/12

jan

/13

ab

r/13

jul/

13

ou

t/13

jan

/14

ab

r/14

jul/

14

Inflation

2-year expectations

5-year expectations

Inflation and Inflation Expectations (Percent)

Sources: Haver Analytics; and IMF staff calculations.

42

44

46

48

50

52

54

56

-120

-100

-80

-60

-40

-20

0

20

40

60

80

Jan

-12

Ap

r-12

Jul-

12

Oct

-12

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Economic Surprise Index

Manufacturing PMI (right scale)

Economic Surprise Index and PMI

(Index)

Source: Bloomberg.

… as financial fragmentation and

geopolitical tensions weigh on the recovery

Source: ECB SAFE Survey.

Gas Energy Imports Exports Inward

FDI

Outward

FDI

Bank

Claims

FIN

AUT

GRC

LUX

ITA

DEU

NLD

BEL

CYP

CHE

IRL

SWE

FRA

Dimensions of Exposure to Russia

0

1

2

3

4

5

6

7

8

jan

/05

set/

05

mai/

06

jan

/07

set/

07

mai/

08

jan

/09

set/

09

mai/

10

jan

/11

set/

11

mai/

12

jan

/13

set/

13

mai/

14

CoreStressed CountriesECB Policy Rate

Euro Area Corporate Lending Rates

(Loans less than 1 million euro, Percent)

Sources: Haver Analytics; and IMF staff calculations.

In China, growth appears to have stabilized but the

massive post-2008 credit boom casts a shadow…

GDP growth recovered in Q2 and is likely to

achieve the full-year target...

0

2

4

6

8

10

12

14

16

18

20

22

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q4

Year-on-year

Staff estimates,

Q/Q SAAR

Official, Q/Q SAAR

Real GDP Growth

(Percent)

Sources: CEIC; and IMF staff calculations.

… but financial sector risks related to past

credit growth are significant.

Stock of Total Social Financing¹

(Percent of GDP)

109

146

15

55

5

10

129

212

0

50

100

150

200

250

2003 2006 2009 2012

Non-fin enterprise equity and other

Entrustred loans, trust loans, bank acceptance, net

corporate bond financing

Bank loans

2008Q4

2014Q2

2014Q2

Sources: CEIC; and IMF staff calculations. 1 In percent of 4Q rolling sum of quarterly GDP.

… while weakness in the real estate sector

remains a key risk

The slowdown in real estate has been a

drag on activity.

0

10

20

30

40

50

60

60

80

100

120

140

160

180

200

220

240

dez/06 mar/08 jun/09 set/10 dez/11 mar/13 jun/14

Investment growth (%, year-on-year; RHS)

Price

Floor space sold

Residential Housing

(Dec. 2006 = 100, SA, 3mma)

Sources: CEIC; and IMF staff calculations.

Property prices are overvalued.

-50

-30

-10

10

30

50

70

2005 2006 2007 2008 2009 2010 2011 2012 2013 14Q1

Beijing

Shanghai

Tianjin²

Guangzhou

Shenzhen

Residential Property Price:1 Deviation from Benchmark

(Percent)

Sources: CEIC; WIND Info; Ahuja et al. (2010); and IMF staff

calculations. 1 Secondhand residential housing price. 2 2014:Q1 price for Tianjin based on January-February average.

Selected Projections for Real GDP Growth

(Percent)

0

10

20

30

40

50

60

70

80

90

100

2004 2006 2008 2010 2012 2014

Global

Financial

Crisis

Current

Slowdown

EM Slowdown

(Share of EM countries with real GDP growth

below the 2003-07 average, percent)

Sources: IMF, World Economic Outlook; and staff calculations.

The growth momentum in most emerging

economies has weakened

2010 2011 2012 2013 2014 2015

Brazil 7.5 2.7 1.0 2.5 1.3 2.0

China 10.4 9.3 7.7 7.7 7.4 7.1

India 10.3 6.6 4.7 5.0 5.4 6.4

Russia 4.5 4.3 3.4 1.3 0.2 1.0

South Africa 3.1 3.6 2.5 1.9 1.7 2.7

Source: IMF, World Economic Outlook July 2014 Update.

Latin America and the Caribbean, in particular,

is facing a subdued outlook for growth…

Latin America and the Caribbean: Real GDP Growth

(Percent)

Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations.

-4

-2

0

2

4

6

8

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019

Avg. 1980-89=2.1

Avg. 1990-2002=2.6

Avg. 2003-12=4.1

Avg. 2013-19=2.9

…partly reflecting reduced momentum in global

commodity markets, amid China’s slowdown…

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

Commodity Exporters Non-commodity Exporters

1990-2002 2003-2013

Sources: IMF, World Economic Outlook July 2014 Update;

and IMF staff calculations.

¹ PPP-weighted average of all Latin American countries.

Latin America: Real GDP Growth

(Percent, year-on-year)

-7

-2

3

8

13

18

1990 1995 2000 2005 2010

Commodity Exporters¹ China

Real GDP Growth

(Percent, year-on-year)

Sources: IMF, World Economic Outlook July 2014

Update; and IMF staff calculations.

¹ PPP-weighted average of Argentina, Bolivia, Brazil,

Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and

Venezuela.

… following a period of extraordinary income

windfalls for the region’s commodity exporters… Latin America’s income windfall in the last decade was several times larger than

historical precedents, and comparable only to the MENA oil exporters

Emerging Latin America and Selected Regions: Income Windfall during Terms-of-trade booms, 1970-2012 1

(Share of annual GDP)

1975

PER

ECU

1980

2000

NOR

AUS

CAN

EM Latin America

2000

RUS

UKR

BEL

2000

IDN

0,0

0,1

0,2

0,3

0,4

2000

SAU

KUW

0,0

0,4

0,8

1,2

1,6

2,0

2,4

2,8

3,2

1970 1985 1990 1995 2000

VEN

BOL

CHL

ARG

PER

PAR

COL

ECU

BRA

PAR

Sources: IMF, International Financial Statistics; and Adler & Magud (2013).

¹ Cumulative percentage change in terms of trade (of goods and services) from start to peak of each identified episode (that meet the criteria of at

least 15 percent cumulative and 3 percent average increase). Episodes are grouped in 5-year window s according to the date of their first year. Dotted

lines indicate group averages.

EM Europe AE MENA Oil

exporters EM Asia

Bars: cumulative income windfall

Dots: Annual average (right scale)

LA Commodity Exporters: Real GDP Growth

by Sector, 2003-13¹

(Percent)

Sources: Haver Analytics; and IMF staff calculations.

¹ Simple average of Argentina, Brazil, Chile, Colombia,

Peru, Uruguay, and Venezuela.

… which supported activity throughout the whole

economy, pushing up real wages...

Sources: Haver Analytics; and IMF staff calculations. 1 Brazil: real salaries in manufacturing; Chile: real hourly

compensation; Colombia: real wage; Mexico: real hourly

earnings in manufacturing; Uruguay: real salaries. 2 Measured as output per employed person.

Real Wage and Productivity Growth, 2008-13

(Year-on-year percent change, simple average)

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

Brazil Chile Colombia Mexico Uruguay

Real wage¹ Productivity²

0 25 50 75 100 125

Mining and Oil

Agriculture and Livestock

Manufacturing

Electricity, gas, and water

Services

Construction

Sources: IMF, World Economic Outlook July 2014 Update;

and IMF staff calculations.

Ratio of Primary Government Expenditure to

Potential GDP, 2003-13

Private Sector Credit

(Percent of GDP)

-5

0

5

10

15

20

25

30

35

40

45

Ecu

ad

or

Arg

en

tin

a

Ven

ezu

ela

Bo

livia

Uru

gu

ay

Nic

ara

gu

a

Para

gu

ay

Mexi

co

Bra

zil

Co

sta R

ica

Pan

am

a

El Salv

ad

or

Co

lom

bia

Peru

Ch

ile

Ho

nd

ura

s

Gu

ate

mala

Lati

n A

meri

ca

Ratio in 2003 Change in ratio through 2013

Sources: IMF, World Economic Outlook July 2014 Update;

IMF, International Financial Statistics; and IMF staff

calculations.

0 20 40 60 80 100

Chile

Brazil

Paraguay

Colombia

Peru

Venezuela

Ecuador

Uruguay

Argentina

2003 2013

…and boosting consumption amid a sharp increase

in private sector credit and government expenditures

The terms-of-trade boom supported a robust

export growth…

80

100

120

140

160

180

200

220

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

volume value2/

Sources: WEO and IMF staff calculations.

¹ Simple average of Latin American countries.

² Total exports in US dollars deflated by the US producer price index .

Latin America: Total Exports

(Index, 2003=100, simple average1)

… while also benefitted investment

LA Commodity Exporters: Investment and

Terms of Trade¹

Sources: IMF, World Economic Outlook July 2014 Update;

and IMF staff calculations.

¹ PPP-weighted average of Argentina, Brazil, Chile,

Colombia, Peru, Uruguay, and Venezuela.

14

15

16

17

18

19

20

21

100

110

120

130

140

150

160

170

2003 2005 2007 2009 2011 2013

Investment (percent of GDP, right scale)

Terms of trade (index: 2003=100)

Selected LA: Investment

(Percent of GDP)

Sources: IMF, World Economic Outlook July 2014 Update;

and IMF staff calculations.

¹ Simple average.

0 5 10 15 20 25 30

Peru

Colombia

Chile

Mexico

Uruguay

Brazil

Venezuela

Argentina

Avg. 2002-04¹ Avg. 2010-12¹

Growth expectations have been revised

downward, notably for investment and exports…

Sources: IMF, World Economic Outlook July 2014 Update; and staff

calculations.

¹ Ratio of GDP levels between the July 2014 Update and September 2011

WEO projections. A value of 100 indicates no difference between the two

projections; values below 100 indicate downward revisions.

² Numbers refer to Latin America only, due to data availability constraints

for several Caribbean economies.

LAC: July 2014 WEO Path for GDP and Components

Relative to Sep. 2011 WEO Projections¹

(Percent)

80

85

90

95

100

105

2010 2011 2012 2013 2014 2015 2016

GDP

Fixed investment

Private consumption

Public consumption

Exports²

LA6: Real Investment Growth¹

(Percent)

0

2

4

6

8

10

12

14

2004-08 2010 2011 2012 2013 2014

Sources: IMF, World Economic Outlook July 2014 Update; and IMF

staff calculations.

¹ Simple average of Brazil, Chile, Colombia, Mexico, Peru, and

Uruguay.

…yet economic slack remains fairly limited,

judging from labor market data, inflation…

Sources: Haver Analytics; and IMF staff calculations. 1 Brazil latest data refer to April 2014. 2 Includes unemployed workers that sought employment within

the last 12 months.

LA6: Unemployment Rate

(Percent, seasonally adjusted)

LA6: Headline Less Inflation Target

(12-month percent change)

Sources: Haver Analytics; Bloomberg; national authorities; and

IMF staff calculations.

0

2

4

6

8

10

12

14

16

18

20

Bra

zil¹

Ch

ile

Co

lom

bia

²

Mexic

o

Peru

Uru

gu

ay

Range since 2003 Jul. 2014

-2

-1

0

1

2

3

4

5

6Brazil

Mexico

Uruguay

Avg: CHL, COL, PER

2010 2011 2013 2012 Aug-14

LAC: External Current Account and Terms of Trade

Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations.

80

90

100

110

120

130

-5

-4

-3

-2

-1

0

1

2

3

1997 2000 2003 2006 2009 2012 2015

Current account balance (Percent of GDP)

Terms of trade (Index, 2000=100, right hand side)

…and persistent current account deficits,

despite still-favorable terms of trade…

LAC: Fiscal Indicators, 2003-15

Source: IMF, World Economic Outlook July 2014 Update.

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

20

22

24

26

28

30

32

34

36

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Primary Balance (RHS) Annual Revenue Primary Expenditure

… all of which argue against large fiscal stimulus today,

especially where buffers have eroded in recent years

By contrast, there is an urgent need for structural

reforms to address supply bottlenecks

0

20

40

60

80

100

Ch

ile

Mexi

co

Uru

gu

ay

Bra

zil

Co

lom

bia

Peru

Ch

ile

Mexi

co

Uru

gu

ay

Peru

Bra

zil

Co

lom

bia

Ch

ile

Peru

Co

lom

bia

Mexi

co

Uru

gu

ay

Bra

zil

Learning

outcomes

(PISA)

Infrastructure

quality

(WEF)

Ease of doing

business

(WB)

Sources: OECD, PISA (2012) ; World Bank, Ease of Doing

Business database (2013); World Economic Forum, Global

Competitiveness Report (2013–14); and IMF staff calculations.

¹ The scale reflects the percentile distribution in all countries for

each respective survey; higher scores reflect higher

performance; PISA: Program for International Student

Assessment; WB: World Bank; WEF: World Economic Forum.

LA6: Structural Indicators¹

(Percentile ranks)

A snapshot of country-specific projections Latin America and the Caribbean: Real GDP Growth

(Percent)

Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations and

projections. 1 Regional aggregates are purchasing-power-parity GDP-weighted averages unless otherwise

noted. Current account aggregates are U.S. dollar nominal GDP weighted averages. CPI

forecasts exclude Argentina. 2 Simple average for Brazil, Chile, Colombia, Mexico, Peru, and Uruguay. 3 Simple average for Argentina, Bolivia, Ecuador, Paraguay, and Venezuela. 4 Simple average. Includes Dominican Republic. 5 Simple average of The Bahamas, Barbados, Jamaica, and ECCU member states. 6 Simple average of Belize, Guyana, Suriname, and Trinidad and Tobago.

2012 2013 2014 2015

Latin America and the Caribbean (LAC)¹ 2.9 2.6 2.0 2.6

Financially-integrated LAC2 4.1 3.5 3.3 3.8

Brazil 1.0 2.5 1.3 2.0

Chile 5.5 4.2 3.2 4.1

Colombia 4.0 4.3 4.5 4.5

Mexico 4.0 1.1 2.4 3.5

Peru 6.3 5.0 5.5 5.8

Uruguay 3.9 4.2 2.8 3.0

Other commodity exporters3 3.1 5.6 2.6 2.4

Argentina 0.9 3.0 -0.5 0.0

Venezuela 5.6 1.0 -0.5 -1.0

Central America4 3.8 3.2 3.4 3.4

Caribbean

Tourism dependent5 0.1 0.7 1.4 1.9

Commodity exporters6 3.7 3.2 3.2 3.2

Downside risks continue to dominate

A more pronounced slowdown in China would further

dampen demand for commodities

Faster-than-expected normalization of U.S. monetary

policy could prompt a sharp correction in financial markets,

after an extended period of low volatility

Risk of a shift toward more populist economic policies in

response to the regional slowdown, jeopardizing hard-won

macroeconomic stability