IDB Sees Low Growth for Latin America as Commodity Boom Fades

April 13, 2016

  • Inter-American Development Bank sees negative growth this year
  • Brazil contraction of 3.8 percent could drag down neighbors

Dragged down by recessions in two of its largest countries, Brazil and Argentina, the region will post a 0.3 percent contraction in 2016 before bouncing back to annual growth of 1.5 percent through 2018, the bank said in a statement released during its annual meeting in Nassau, Bahamas, on Sunday.

That’s down from the 4 percent average annual growth the region saw during the a decade of high commodity prices that ended in 2013. A struggling global economy, including slower growth in China, has led to less demand for the copper, crude oil and soybeans that various South American countries produce.

“Not until the year 2020 are growth rates expected to approach the average levels that prevailed from 1980,” IDB chief economist Jose Juan Ruiz wrote in the report. “For commodity exporters, though, the loss of revenues has put both fiscal and external balances under pressure.”

Brazil’s Crisis

The forecast comes amid a deepening political crisis in the region’s largest economy, Brazil, where lawmakers will decide as early as April 17 whether to vote to impeach President Dilma Rousseff. The bank said Brazil’s economy will shrink by 3.8 percent this year. That in turn could hurt trading partners such as Uruguay, one of Latin America’s best performers in the last decade with gross domestic product expanding by around 5 percent a year.

“This year and 2017 will be difficult because of the situation in Brazil and Argentina,” said Uruguay Minister of Economics and Finance Danilo Astori in an interview. “In 2018, we should return to higher growth levels.”

The bank said the forecast is uneven as several of the countries in Central America and the Caribbean are seeing growth of above 3.5 percent, helped in part by lower oil prices.

Still, the bank warned that governments need to prepare for slow economic growth by adjusting their fiscal policies, said Santiago Levy,  the bank’s vice president for sectors and knowledge.

“Many countries are in the difficult position of having to act now or face more painful adjustments later on,” he said.