Yearender: Domestic spending to sustain LatAm economies in 2019

Source: Xinhua| 2018-12-31 18:38:10|Editor: xuxin
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by Luis Rojas

MEXICO CITY, Dec. 31 (Xinhua) -- Latin American countries are expected to see stronger economic growth in 2019, mainly thanks to domestic consumer spending which compensates for a lack of foreign investment and demand for goods, relevant organizations predicted.

Regional gross domestic product (GDP) could expand by 2 percent next year, compared to the 1.4-percent growth projected for this year, said Pedro Tuesta, chief economist at market research firm Continuum Economics.

"While we downgraded our economic growth forecasts for some countries, we expect the region as a whole to see significant recovery in 2019," Tuesta told Xinhua.

"Within the region, the main risk is that populist policies will undermine the fiscal balances," said Tuesta.

Latin America's outgoing governments, including those of Mexico and Brazil, "were proactive about meeting their fiscal objectives," but "slow growth made the task difficult," he said.

It remains to be seen what the new leaders in Mexico, Brazil and Colombia will accomplish, he said.

The region also faces external risks due to reasons such as protective policies of the United States, Tuesta said.

"It's unlikely that the region's trade exchange will improve in 2019, since the prices of basic goods have reached a peak, and slow global growth has cut demand," Tuesta added.

Latin America's biggest economy -- Brazil -- will see a 2.4-percent growth next year, up from the 1.5-percent growth forecast for 2018, according to Continuum.

Mexico, the region's second-largest economy, is expected to see a 1.8-percent growth in 2019, down from this year's 2.1 percent.

The Chilean and Colombian economies are both forecast to grow by 3.2 percent, while crisis-hit Argentina should see a 0.5-percent economic increase in 2019 compared to this year's 2.2 percent.

Barcelona-based financial analysis firm FocusEconomics agrees with Continuum that 2019 will be a better year for Latin American economies than 2018.

This year marked "a chaotic and clamorous election cycle," some disaffection among investors towards emerging markets and a sharp turn towards protectionism worldwide, the firm said.

Its growth forecasts for next year are somewhat more optimistic than that of Continuum's, reaching 2.3 percent, up from this year's 1.7 percent, which excludes Venezuela, with Brazil leading the way.

"Brazil's strengthening, thanks to an improvement in the labor market (and) less political clamor ... will be spurred by acceleration in the region, along with a less critical Argentina, following the tough adjustments of this year," said FocusEconomics.

"To a lesser degree, faster growth in Chile and Peru will also spur regional growth," said the firm.

Meanwhile, the Inter-American Development Bank (IDB) forecast a 2.2-percent growth in 2019 for Latin America and the Caribbean in a report released on Dec. 14.

Regional growth is driven by global trends, domestic factors and the interaction between the two, the agency said.

Fernando Lopez, head of the Mexican Institute of Financial Executives, warned that regional economies will have to deal with a complex international landscape next year.

"The markets are concerned by the slowdown of the global economy. Trade tensions persist, Britain's exit from the European Union could become more complicated and the U.S. Federal Reserve could raise its interest rate," Lopez told Xinhua.

Given this situation, domestic consumption will serve to sustain regional economies, handing central banks the challenge of alleviating the subsequent inflationary pressures, said Lopez.