The economies of Latin America are expanding again. But the problem is, growth is slow.
And there are plenty of uncertainties that could sap the region's growing economic vitality — from a series of upcoming elections across Latin America to the impact of a potential trade war between the United States and China and the outcome of NAFTA negotiations.
The Inter-American Development Bank (IDB) predicts that Latin American economies will grow 2.2 percent this year and inch up to 2.6 percent growth in the 2018-2020 period. Venezuela, where the economy is on life support, is a notable exception.
While economic growth in the region is welcome after a sluggish year in 2017 and two straight years of economic contraction in 2016 and 2015, "growth is too slow to satisfy the desires of the region's middle class," said José Juan Ruiz, the IDB's chief economist.
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Latin America also continues to lag emerging nations in Asia and Europe whose economies are expected to grow 6.5 percent and 3.7 percent, respectively, from 2018 to 2020.
In a new report, "A Mandate to Grow," IDB analysts say Latin America will continue to lose its share of global GDP unless the region improves investment levels as well as the quality of investments.
"We need to invest more, but especially we need to invest better," said Eduardo Cavallo, the IDB's lead economist and one of the authors of the report.
He said there's a strong relationship between investment and gross national savings and that on average, savings rates in Latin America have been lower than other areas of the world.
Another factor that has driven growth in recent decades — growing young populations — also is disappearing as Latin American populations age and birth rates decline.
"We will not have the tailwinds of the demographic dividend," Cavallo said. "We will have headwinds."
But in the short term, "the greatest risk [for Latin America] is uncertainty," said Daniel Godinho, a former Brazilian secretary of foreign trade and a senior fellow at the Atlantic Council.
The United States imposed a 25 percent duty on Chinese steel imports and a 10 percent tariff on aluminum imports in March. It released a list of $50 billion worth of Chinese imports, mostly high-tech products, in April that could be targeted for tariffs, and President Donald Trump also has instructed the U.S. Trade Representative to consider whether another $100 billion in tariffs would be appropriate.
If U.S.-China trade relations deteriorate further, it could potentially create some opportunities for some Latin American countries. China has threatened $50 billion in tariffs on U.S. soybeans, aircraft and cars, for example, and that could spur Chinese demand for some manufactured products, soybeans from Brazil, and soybean oil from Argentina.
"The demand is there, but [Brazil's] exportable supply is quite limited," Godinho said. A drought that began last November also has cut into Argentine production of soybeans and corn.
Senior Trump administration officials recently spent two days in Beijing in an effort to iron out trade issues, but it appears little progress was made. The two sides plan to hold further discussions next week.
If a trade war caused the Chinese economy, and by extension the world economy, to slow, it could have a negative impact on Latin American economies, which are largely commodity exporters. A Banco Santander study estimated that if a trade war developed, it could reduce Brazil’s 2019 GDP by 1.1 percent.
"Latin America would surely be caught in the crossfire between a U.S.-China trade conflict," said Gerardo Mato, chairman for global banking and markets in the Americas for HSBC. A tit-for-tat trade war could potentially depress commodity prices, accelerate protectionist measures internationally, and distract from the reform agenda in Latin America, he said last week during an Atlantic Council conference on U.S.-China trade tensions.
It appears NAFTA negotiations are back on track with Canada, Mexico and the United States meeting in Washington last week. U.S. Trade Representative Robert Lighthizer has said he hopes to see a new agreement by the end of May so that the U.S. Congress could approve a revised agreement this year. But meeting such a deadline could be difficult, and in 2019 a new Congress, which may not be as NAFTA-friendly, takes over.
Also looming is a June 1 deadline when the United States says it will begin imposing tariffs on steel and aluminum imports from Mexico and Canada if a new NAFTA pact isn't reached by then.
Since late 2017, four Latin American countries have changed leadership and elections are scheduled in four more before the end of the year. "It's the heaviest election calendar in Latin America in many, many years," said Joyce Chang, head of economic research at J.P. Morgan.
Three of the countries with upcoming elections — Mexico, Brazil, and Colombia — account for 45 percent of the region's GDP.
But economies don't turn on a dime and it takes time for a change in government to potentially impact trade patterns.
"There's not an immediate change when there is a new president. There's usually a lag of 18 to 24 months," said PortMiami Director Juan Kuryla.
Still, candidates who aren't perceived as pro-business can make currency markets and potential foreign investors jittery.
All the uncertainty over tariffs and trade pacts has been good for at least one segment of South Florida's international trade community: the Customs lawyers.
"I think Customs lawyers are busier today than they were pre-Trump. He's changed so many rules," said Peter Quinter, who heads the Customs & International Trade Law Group at GrayRobinson. He said the Trump administration has been much more aggressive in applying anti-dumping and countervailing duties.
One recent case involved Chinese steel shipped into Mexico for processing. The question for Quinter was whether it should be considered Chinese steel or Mexican steel because it was substantially transformed in Mexico.
"For me, it's good business," said Quinter. "Do I think it's good for the country? I don't know about that."
Colombia, Peru, Brazil and Argentina also are good markets for his law practice, which deals with U.S. Customs regulations and rules. Quinter is high on both the Brazilian market— perennially the top trading partner for South Florida — and Argentina. "I'm very optimistic about increased trade and travel with both Brazil and Argentina," he said.
Here's a look at how Latin America's five largest economies are expected to fare in 2018:
Mexico: At this point leftist Andrés Manuel López Obrador, an outspoken critic of President Trump's border wall, appears to be the frontrunner in an election that could be a turning point in U.S.-Mexican relations.
"The Mexicans say it appears like Trump is his campaign manager," said Eduardo Gamarra, a political science professor at Florida International University. Every time Trump talks about the border wall or tearing up NAFTA, it reinforces nationalist sentiment and the campaign of López Obrador, who is known as AMLO and is the leader of the National Regeneration Movement (MORENA), gets a boost.
The PRI's candidate is José Antonio Meade and centrist Ricardo Anaya is running on the PAN ticket in the July 1 election. Anaya, who has proposed a monthly guaranteed minimum income, seems to be perceived as the continuity candidate.
Among López Obrador's campaign promises are reducing the power of Mexico's big corporations and canceling some of Mexico's massive public works projects. There has been push-back from Mexico's business elites who believe his policies would slow the Mexican economy.
Mexican billionaire Carlos Slim said last month that he would be both "concerned and afraid" if López Obrador won and then canceled the $9.2 billion Mexico City airport project. The Mexican Council of Businesses has reminded the candidate that the private sector is responsible for 90 percent of the formal jobs in the country. In the face of those attacks, López Obrador has said he doesn't plan any expropriations, he won't raise taxes and he will respect the autonomy of the central bank.
"He's done an amazing job of moderating his positions" while on the campaign trail, said John Price, managing director of Americas Market Intelligence. "He understands that to distribute wealth, you have to create and retain it."
The U.N.'s Economic Commission for Latin America and the Caribbean is projecting 2.4 percent economic growth for Mexico this year, slightly more robust than the previous year.
But Jason Marczak, director of the Atlantic Council's Adrienne Arsht Latin America Center, said Mexico is a big question mark depending on the outcome of the election. "If AMLO ends up winning, it will be critical for him to send signals to shore up the confidence of the international community that he will responsibly govern."
Colombia: Colombia is among the countries that is expected to show stronger growth in 2018. ECLAC estimates its GDP will grow 2.6 percent in 2018, compared to 1.8 percent last year.
It is also holding a presidential election on May 27.
In a country where in recent years there haven't been any big surprises in presidential elections, "there is a degree of uncertainty shaking the place," Price said.. "The investment climate has stalled."
Although polls in Colombia are notoriously unreliable, they have indicated that the candidate from the right, Iván Duque, who was endorsed by ex-President Álvaro Uribe, is the frontrunner. He's followed by Gustavo Petro, a former M-19 Marxist rebel who served in the Colombian Congress and as Bogotá mayor. The frontrunners face three other major candidates.
For Colombia, the key to moving the economy to the next level is its eventual OECD (Organization for Economic Cooperation and Development) installation, Marczak said. But a decision on Colombia's joining the 34 democracies with market economies that make up the organization may not come until fall. "It is crucial to long-term investor confidence in Colombia," Marczak said.
Meanwhile, an influx of hungry Venezuelan refugees fleeing the Maduro government also has created a pool of workers willing to work off the books for low wages, "undermining opportunities for middle-class Colombians," Price said.
Brazil: In Rio de Janeiro, street vendors set up stands or spread out cloths along busy thoroughfares offering everything from used books and artificial flowers to clothing, towels and snacks. It's a sign of pervasive underemployment, which has been exacerbated by a steady stream of Venezuelans trying to escape a dismal economy at home.
Although Ilan Goldfajn, the governor of the Central Bank of Brazil, said in a recent conference call that the Brazilian economy has recovered and is expected to grown in the 2.5-3 percent range this year, unemployment remains stubbornly high. For the first quarter, IBGE said the unemployment rate was 13.1 percent up from 11.8 percent in the last quarter of 2017.
But inflation, which was at 11 percent two years ago, is currently running at less than 2 percent and is expected to finish the year at 3.8 percent, Goldfajn said.
Low interest rates and low inflation are expected to continue over the next couple years, he said, and Brazil has sufficient buffers to protect itself against volatility in global markets. "We have enough ammunition to deal with any scenario that presents itself," Goldfajn said. Currently Brazil has 20 percent of its GDP in reserves.
But Brazil nevertheless faces challenges. Pension reform is currently stalled although Goldfajn says Brazil's "reform agenda is quite alive."
Marczak, however, said he doesn't expect any more reforms before Brazil's Oct. 7 presidential election.
Meanwhile, the long-running Lava Jato (Car Wash) corruption investigation, which has snared more than 100 politicians and scores of business executives, continues.
Former President Luiz Inacio "Lula" da Silva, who was the presidential frontrunner, is in jail on a corruption conviction. Even though his supporters hope that appeals or future court decisions could free him to run, it is unlikely they would come in time. That throws the presidential race, in a very crowded field, wide open.
"It seems that Lula's judicial woes have opened space for a more centrist candidate," Chang, of J.P. Morgan, said.
"At the end of the day, I believe that whoever wins in Brazil will have a tough time governing," Price said.
Argentina: Argentina had hoped for economic growth in the 3.5 percent range based largely on expectations of a record soybean crop. But the lingering drought has cut not only into soybean and corn production, but by extension has hit Argentina's beef and dairy industries, which are dependent on corn and soy for animal feed.
Argentina also is facing some other headwinds. On May 4, Argentina's central bank hiked interest rates to 40 percent in its third increase in eight days. The move was aimed at shoring up the peso, which has lost a quarter of its value in the past year. It had dipped to a low of 23 pesos to $1 U.S. Inflation also is running at 25.4 percent.
President Mauricio Macri’s plan to increase investment got a boost last Wednesday when Argentina’s Congress passed a capital markets reform bill that’s expected to help the economy by reducing the power of market regulators and restrictions on some funds that invest in Argentina.
While investors welcome Macri's steps to stabilize the third largest economy in Latin America, there is concern that he still hasn't done enough to reassure investors and reverse the protectionism and aggressive government spending under former President Cristina Fernández de Kirchner.
"During the Kirchner years, there was a huge increase in government spending compared to the savings rate. Now Argentina needs to increases its national savings rate by 10 percentage points," Joaquin Cottani, the chief economist at Standard & Poors, said during a recent IDB discussion. Argentina also has the highest level of taxes relative to GDP, he said.
Chile: Chile's economy is expected to grow in the 2.8 to 2.9 percent range as the price of copper, the commodity that's long been the country's life blood, recovers.
President Sebastián Piñera, who took office in March, has vowed to revive the economy and institute more pro-businesss policies than his center-left predecessor Michelle Bachelet. During Piñera's first term in office from 2010 to 2014, annual economic growth averaged more than 5 percent. But copper prices were already starting to weaken as he left office.
In a new report, the Organization for Economic Cooperation and Development said that the commodity boom and surging copper prices hid Chile's "weak non-commodity exports and low productivity."
While relative poverty, the number of low-skilled workers and youth unemployment remain high by OECD standards, the organization said efforts are underway in Chile to increase equity and raise the quality of education.
But in the short term, things are looking up for Chile. "Solid fundamentals, a better global outlook for commodity exports and trade, monetary policy easing and a supportive fiscal stance are helping a gradual recovery," said the OECD report.
The Economic Commission for Latin American and the Caribbean estimates that five countries in Central and South America will grow by at least 4 percent in 2018: Bolivia (4 percent), Costa Rica (4.1 percent), Panama (5.5 percent), Paraguay (4 percent) and Nicaragua (5 percent).
But the forecast for Nicaragua is in doubt after weeks of deadly clashes between protesters and pro-government forces over an unpopular social security decree that taxed workers more and cut benefits for retirees. President Daniel Ortega has pulled back on the social security reform, but the unrest has weakened his government.
The ECLAC forecast for Venezuela, which is beset by social unrest, food shortages, inflation that had reached nearly 18,000 percent at the end of April and a crippled oil economy, was a 5.5 percent contraction in the economy. That comes on the heels of two straight years when the economy contracted by more than 9 percent.
Venezuela also is holding a presidential election on May 20, but an opposition coalition says the election will be rigged and has refused to challenge President Nicolás Maduro.
"We're at the point of 5,000 Venezuelans a day leaving for Colombia and Brazil, and I think the situation will become worse after the election," Marczak said. "The Maduro government has been propping things up as much as possible before the election. The economy will significantly worsen post-election."
Venezuela was the Miami Customs District's top trading partner for many years. By 2010, it had dropped to No. 5 and during the first quarter of 2018, its share of the Miami district's total trade, by dollar value, had fallen to just .43 percent, according to an analysis of U.S. Census data by WorldCity, a Coral Gables media and data company.
Many of the Caribbean countries, which were hard-hit by a spate of hurricanes in 2017, are expected to only achieve marginal growth — in the 1 percent range— in 2018. Dominica, which was walloped by hurricane Maria, saw its economy contract by 8.3 percent in 2017, according to ECLAC. Building on that very low base and spurred by an influx of aid, ECLAC predicts Dominica's economy will grow 7.6 percent in 2018.
In April, the World Bank approved $65 million for Dominica to help its farmers and fishermen recover. That's part of a larger $115 million package of support the bank provided to the eastern Caribbean country, which reported more than 30 killed and an estimated $1.37 billion, or 226 percent of GDP, in losses.
"This financing enables us to make two critical investments in our economic recovery following the devastation of hurricane Maria last year. These investments in agriculture and housing also represent vital components of our plan to make Dominica the first climate-resilient nation in the world," said Dominica Prime Minister Roosevelt Skerrit.
The hurricanes caused major damage not only to a number of islands' tourism infrastructures but also to their reputations as tourism destinations even as they rebuilt and made repairs.
During a visit to Miami in early April, Skerrit said, "There has been some progress." Crops planted after the hurricanes have begun to yield exports and the cruise ships began returning to Dominica in January.
ECLAC is predicting 2.2 percent growth for Haiti, a country whose economy is closely watched in South Florida. But that's far lower than the 3.9 percent target of Haiti's new government, which has introduced a series of economic measures, including requiring the use of Haiti’s official currency, the gourde, rather than U.S. dollars in all financial transactions.
At the same time, inflation is runnning at an estimated 10 percent, the government is spending about $31 million more a month than what it’s bringing in, and the current deficit stands at about $155 million.
“We are importing in billions and we are exporting in millions,” said Port-au-Prince-based economist Kesner Pharel. "Low growth, high inflation, this combination is a recipe for poverty."
If things don't improve, Haiti will be looking at “not just more poverty, but extreme poverty," Pharel said.
Haiti is currently under a six-month International Monetary Fund monitoring program, and Haiti Minster of Economy and Finance Jude Alix Patrick Salomon has warned that some unpopular economic measures are coming, including raising fuel prices at the pump.
Gas prices haven’t gone up in more than a year and are currently 43 percent lower than those in the neighboring Dominican Republic. Dominican truckers have taken advantage of the price differential to fuel up in Haiti, amounting to a Haitian subsidy for the Dominicans.
Adding to Haiti’s predicament is the fact that the country cannot borrow on the international market, Venezuela’s discount Petrocaribe oil loan program is no longer providing the cash flow to the government that it once did, and the country's trade is very lopsided, Pharel said.
But there are a few positive signs. Agriculture, which took a devastating hit from Hurricane Matthew in 2016, has shown some recovery. And international donors think Haiti is capable of much faster growth if it were to get greater foreign investment and make structural reforms.
Even 2 percent growth could be difficult to achieve, Pharel said, if Haiti “gets a huge shock with the hurricane season that opens June 1.”
Latin American elections 2018:
Chile: Elections took place in 2017, but President Sebastián Piñera took office March 7, 2018
Costa Rica: Feb. 4 and April 1 runoff
Winner: Carlos Alvarado Quesada
Cuba: April 19 presidential transition of power
New leader: Miguel Díaz-Canel
Paraguay: April 22 presidential and legislative election. President takes office Aug. 15
Winner: Mario Abdo Benítez
Venezuela: May 20 presidential election but opposition coalition will boycott
Colombia: May 27 presidential election and June 17 runoff
Mexico: July 1 presidential and legislative election
Brazil: Oct. 7 presidential and legislative election and Oct. 28 runoff