Latin American economic outlook has changed after a decade of relatively strong growth.
The area today is facing headwinds associated with cheaper commodity prices, declining trade and uncertainty regarding financial conditions in other parts of the world, says the latest Latin American Economic Outlook, a joint publication by the UN ECLAC (UN Commission for Latin America and the Caribbean), the OECD Development Center, and CAF (Development Bank of Latin America).
The new report was released during the 12th Ibero-American summit in Panama City.
The authors say the three external pressures that are weighing in on Latin American economic outlook are:
- Weak performance in the Euro zone.
- Much slower growth in a number of emerging economies.
- Uncertainty over American monetary and fiscal policy.
OECD Secretary General Angel Gurría, said:
“Latin America can still achieve sustainable and inclusive growth, but the window is narrowing. To meet the new challenges and opportunities posed by an increasingly interconnected global economy, countries across the region need to boost competitiveness, through economic diversification, improved logistics performance and a move up the value chain towards higher value-added activities.”
ECLAC Executive Secretary ,Alicia Bárcena, said: “It is necessary to adopt reforms to enhance productivity and reinforce the capacity of governments to respond to the demands of an ‘emerging middle class,’ while redoubling their efforts to reduce the levels of poverty and inequality.”
In comparison to other regions in the world, technological innovation and economic diversification, two vital components for boosting productivity and growth, remain low in Latin American, the authors of Latin American Economic Outlook” wrote.
Emerging Asia’s contribution to world GDP has more than doubled since the early 1990s, while that of Latin America has remained the same at between 7% and 9%.
Too many Latin American economies focus heavily on natural resources. In the year 2000, forty percent of the region’s exports consisted of commodities. Today commodities make up 60% of exports.
Natural resources need to be the foundation for the transition to production processes that use knowledge and technology, the report pointed out.
Latin American economic outlook would benefit from diversification
Latin American economies need to diversify, especially toward the services sector, which offers great opportunities for the medium- and long-term future.
Enrique García, President and Chief Executive Officer of CAF, said:
“Further investment in transport infrastructure, and better logistics performance in general, is needed. Latin America’s production structure is more sensitive to logistics than that of the OECD countries. The share of time-sensitive exports in Latin America is three times that of the OECD countries, which underlines the importance of improving logistics to strengthen overall economic performance.”
Better infrastructure would improve Latin American economic outlook
Latin America urgently needs better transport infrastructure, especially regarding its roads, ports, railways and airports.
If 5.2% of Latin America’s GDP were spent on infrastructure projects each year:
- The infrastructure gap with other emerging regions would close.
- GDP growth would be boosted by 2 percentage points each year.
Over the short term much can be done to improve the transportation of goods and services using the infrastructure that is currently available, through:
- More competition in transport.
- Efficient customs and certification procedures.
- Modern storage facilities.
- Integrated logistics policies.
A Goldman Sach’s BRIC review forecasts that by 2050, the largest economies in the world will be (in order): China, U.S.A., India, Brazil and Mexico.
Latin America – Some facts
- Population – 589,018,078.
- Area – 21,069,501 km2.
- Countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, French Guyana, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Puerto Rico, Uruguay, Venezuela.
- GDP (PPP) $7.114 trillion (nearly half that of the U.S.).