The Economic Commission for Latin America and the Caribbean (ECLAC) has released its outlook for the region’s growth in 2019, and what it can expect in 2020. Here STAR Businessweek breaks down the top ten takeaways from ECLAC’s Preliminary Overview of the Economies of Latin America and the Caribbean 2019.
(1) By the numbers
ECLAC is predicting 0.1 per cent growth for the region in 2019, and forecasting 1.3 per cent growth for 2020. Acknowledging that growth is not where it needs to be, ECLAC Executive Secretary Alicia Bárcena blamed a reduction in GDP across the region, declines in investment, falling exports and a deterioration in the quality of employment. Other contributing factors included slack domestic demand and fragile international markets.
(2) A pessimistic view
The numbers paint a discouraging picture. Last year, 23 out of the 33 countries in the region reported a slowdown. Furthermore, during 2014-2020, Latin American and Caribbean economies experienced the lowest growth period in seven decades. In that time, GDP contracted by 4 per cent and the number of unemployed people in the region grew to 25.2 million.
The region’s decline is in keeping with a subdued global outlook. The report states: “This comes in a global context of low growth and increasing vulnerability, with no significant positive catalysts expected. Coordinated, expansionary domestic economic policies are therefore needed to boost countries’ growth. The main economic policy challenge is preventing the region from falling into economic and social stagnation, while maintaining progress on macrofinancial stability and debt sustainability.”
(3) Caribbean strength
The Caribbean outperformed Latin America in 2019 and is expected to do so again in 2020 with average sub-regional growth of 5.6 per cent, in comparison with Central America expansion of 2.6 per cent and South America’s 1.2 per cent.
Dominica was the biggest grower in 2019, seeing its economy expand by 9 per cent. Antigua and Barbuda followed with 6.2 per cent growth and the Dominican Republic and Guyana rounded out the top positions with growth of 4.8 per cent and 4.5 per cent respectively.
(4) Top performers in 2020
Thanks to its uptick in oil production, Guyana is expected to boom this year with 85.6 per cent growth in its economy. Antigua and Barbuda continues to rise with anticipated 6.5 per cent growth and Dominica should see a 4.9 per cent expansion.
(5) Saint Lucia trends up
Saint Lucia came middle of the pack in 2019 with a 2 per cent growth in GDP, but the country continues to trend upward, from 1.5 per cent in 2018 to a projected 3.2 per cent bump in 2020.
(6) Fiscal responsibility
Public debt rose in Latin America throughout 2019 but fell in the Caribbean, from 71.7 per cent of GDP in 2018 to 69 per cent by mid 2019. Saint Lucia fit the encouraging trend, reducing its public debt from 62.2 per cent in 2018 to 59 per cent in June 2019.
ECLAC predicts that fiscal policy in the Caribbean is likely to become even more complex in the coming year as governments try to balance the need to address inequality and gaps in social spending with debt reduction. The organisation highlights the public sector’s “insufficient capacity to mobilize resources for development, weak redistributive muscle, shortcomings in the provision of public goods and services, and a limited institutional framework for countercyclical measures.”
(7) Consistent public spending
Public expenditure in the Caribbean has hovered at around 28 per cent of GDP for the past three years. ECLAC predicts there will be little variation in the sub-regional average as slight increases in primary expenditure in the Bahamas, Barbados, Guyana, Jamaica and Trinidad and Tobago are offset by decreases in Grenada, Saint Lucia and Suriname.
(8) Maintaining the public purse
The Caribbean’s public revenue also saw little change in 2019 with just a slight jump from 27 per cent of GDP in 2018 to 27.2 per cent in 2019, the majority of which came from tax collection.
(9) Challenges ahead
2020 will bring no relief from uncertainty, according to ECLAC. Trade tensions will remain, increasing small nations’ vulnerability and dampening investor confidence. Commodity prices are expected to fall further in 2020 and the US and China are also facing sluggish growth. Rising global debt, driven partly by low interest rates, will negatively affect balance sheets and present significant risk to major economies.
In summary, the coming year offers little relief. As the report states: “The international outlook for 2020 is no better than it was in 2019, and it is not possible to rule out new bouts of greater volatility and deteriorating financing conditions, which may go hand in hand with a further slackening of economic activity in various regions, including Latin America and the Caribbean.”
(10) Solutions
While the outlook is muted in the short to medium-term, ECLAC suggests that the region can tax its way to prosperity. Strengthening revenue collection must be a priority for governments, according to the UN organisation which recommends a progressive tax structure that reduces tax evasion, re-evaluates tax expenditure and introduces new taxes covering the digital economy, the environment and public health.
To reactivate economic growth and increase productivity, ECLAC indicates that there should be greater public spending in the areas of investment and social policies, in addition to providing better quality public goods and services.
Bárcena commented: “The current conditions require that fiscal policy be centred on the reactivation of growth and on responding to growing social demands.”
