Report on Latin American economy : first half of 2018

Abstract

Against a favourable external backdrop, the Latin American economies continued their recovery in the second half of 2017, although at a somewhat slower momentum. The most notable features of that period were more strongly performing investment and a more negative contribution to growth by the external sector. However, the improved terms of trade allowed the current account deficits to be reduced. Inflation moderated more than expected, allowing the central banks of Brazil, Colombia and Peru to continue cutting their official interest rates. However, prices moved unexpectedly upwards in Mexico and Argentina, prompting a tighter monetary policy. In the budgetary arena, most countries failed to make significant headway in the recovery of fiscal space, an issue which is analysed in the first thematic section of this Report along with the effects on the macroeconomic scenario that would result from the fiscal consolidation needed to make public debt sustainable. Financial conditions, as analysed in the other thematic section of this Report, which calculates financial conditions indices for the economies of the region, remained slack in the period analysed, since the international financial market turmoil had little impact and commodity prices (a key determinant of financial conditions in these economies) recovered. The forecasts are for the dynamism of activity to continue in 2018 and 2019, at a pace near the potential growth rate of these economies, although the balance of external risks (change in macroeconomic policies in the United States which may finally feed through to a tightening of financial conditions worldwide, and a possible widespread increase in barriers to international trade) and internal risks (uncertainties as to what economic policies will be implemented following the elections to be held in the coming months) is tilted to the downside