There are bright spots as Latin American and Caribbean economies begin the year but the uncertain health of the U.S. economy, the lingering financial crisis in Europe and more sluggish growth in China are casting shadows over the region.
A decade ago, dim prospects in those major markets would have delivered a knock-out punch in the region, but this year Latin American and Caribbean economies are expected to grow by 3.5 percent and average 3.9 percent growth in 2014 and 2015, according to a World Bank forecast. The United Nations’ Economic Commission has a slightly more sanguine forecast of 3.8 percent growth in 2013.
Both are better than the 2.4 percent growth the World Bank is forecasting for the global economy and the mere 1.3 percent increase it is predicting for high-income countries.
The U.S. economy grew by 2.2 percent in 2012. But the economy shrank 0.1 percent in the fourth quarter and the first quarter of 2013 also could be sluggish..
“That creates a soggy start for 2013 in Latin America,’’ said David Malpass, president of Encima Global, a New York economic consulting and research firm.
With a recession in Japan, even slower growth expected in Europe than in the United States, and questions about whether the dip in the Chinese economy has bottomed out and whether the United States will be making sharp cuts in defense spending and other federal programs come March 1, Latin American and Caribbean nations can’t really depend on the industrialized world to spur growth.
The region must look inward and undertake structural reforms that will allow growth from domestic factors, said Malpass, who was in Miami in January for an event organized by the University of Miami’s Center for Hemispheric Policy.
Panama’s $5.25 billion investment in expansion of the Panama Canal is an example of the inward focus that will pay off down the road, said Malpass. By 2015, Panama plans to have completed two new sets of locks on the Atlantic and Pacific sides of the canal and the deepening and widening of existing channels to accommodate the so-called Post-Panamax ships too big to traverse the current locks.
“It’s a difficult period but a period where developing countries are growing solidly but not as quickly as they might otherwise want to,’’ said Andrew Burns, the lead author of the World Bank’s annual Global Economic Trends report.
That means they should focus on investment in infrastructure and healthcare, structural policies, regulatory reforms and improvements in governance that will pay future dividends down the road, Burns said.
Such economic reforms, plus high commodity prices enjoyed by countries with fertile fields and mineral wealth, helped the region move beyond the global financial crisis of 2008 and 2009 far more quickly than it did when it was so dependent on economic cycles in the rest of the world.
Economic growth slowed in Latin America and the Caribbean from 4.3 percent in 2011 to an estimated 3 percent but that was still better than the 1.3 percent growth high-income countries managed in 2012, according to The World Bank.
China will continue to play a major role in Latin America and the Caribbean this year but whether the slowdown in China has reached its low point is subject to debate. But it’s relative. Slow growth in China would be brisk growth elsewhere. China says its gross domestic product grew 7.8 percent in 2012, the most tepid growth in 13 years and a comedown from 9.3 percent growth in 2011.