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Latin America has often been considered one of the largest areas for economic growth; however, at the end of the first fiscal quarter, the region has contracted. Despite most economies in the region continuing their steady growth paths, Argentina, Brazil, and Venezuela have decreased in their growth, with only Chile and Peru seeing an increase of growth. This can be attributed to global conditions, as other countries, such as China and Japan have also showed similar signs of decreased economic growth.
Some of the reasons for the decrease in growth could be attributed to the decrease in the value of several Latin American currencies, which recently began to recover. The strengthening of the currencies to the U.S. dollar reflected the U.S. Federal Reserve’s inclinations as well as other market fluctuations. Unfortunately, it does not look like this trend will continue, due to the various policy differences between the Latin American economies, the lack of liquidity in the current global economy, and the economic impact of the U.S. Federal Reserves' expected rate increases. The recent fluctuations of commodity prices can increase the pressure on South America’s net commodity exporters. However, financial risks have increased after a strong capital inflow, regional credit growth, and low interest rates.
The International Monetary Fund called on policymakers in the region to ensure that the public finances are stable, as there can be potential risks associated with economic growth. The financial sector would also need to be monitored for vulnerabilities such as weaker earnings, tighter funding conditions, and a strong U.S. dollar. For several Latin American countries, a priority for their governments would be to solve long-standing structural problems to aid productivity, investment, and potential economic growth in the future.
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