World Bank lowers 2015 Latin America growth forecast to 0.4%

The World Bank’s latest global outlook report for Latin America and the Caribbean predicts slow growth for the next two years with the region expected to face a protracted decline in commodity prices, less demand for energy products, and fiscal tightening in many countries, which could lead to more recessions.

Only six months ago, the bank was predicting 1.7% growth for Latin America this year. But now the region is expected to close out 2015 with 0.4% growth.

The Latin and Caribbean economies will only begin to recover from their recessions by next year, with the World Bank forecasting 2.0% and 2.7% growth rates for 2016 and 2017, respectively.

The Latin and Caribbean economies will only begin to recover from their recessions by next year

In its report Global Economic Perspectives: The Global Economy in Transition, the bank said the major factors hindering growth were a drop in demand for domestic products, weak investor confidence, droughts, and declining commodity prices.

In Brazil, where the economy is expected to contract 1.3% this year, tough challenges are at hand as the country deals with a massive corruption scandal at state-owned oil company Petrobras, which has ensnared high-level politicians and top businessmen, dampening investor confidence, said Kaushik Basu, the bank’s chief economist.

Nevertheless, the poorest performer in the region is predicted to be Venezuela, where the economy is expected to shrink 5.1% this year, higher than last year’s 4% contraction. The World Bank does not foresee any type of recovery until 2017.

The poorest performer in the region will be Venezuela, where the economy is expected to contract 5.1% in 2015

“Argentina will see modest growth this year, but economic activity is expected to pick up in 2016 and 2017 on a stronger macroeconomic environment and regained access to international capital markets,” the report said.

The bank’s economists predict that the Argentinean economy will grow 1.1% this year, doubling its 2014 growth rate.

In Mexico, which is one of the region’s three biggest economies, the situation is described as “fragile.”

“In Mexico, as the reforms approved in 2013-14 are implemented and gain traction, investment should be stringent and offset the drag from lower oil prices,” the report stated.

President Enrique Peña Nieto has introduced a series of measures aimed at restructuring Mexican society, including making major changes in education, welfare and fiscal policies. He has also opened up the state-owned oil industry to foreign investors.

The World Bank expects Mexico to close out the year with 2.6% growth, which is projected to rise to 3.2% in 2016.

In economic terms, the fastest-growing countries in the region have been Panama, which is expected to increase 6.2% this year, and Peru, which is predicted 3.9% growth this year and 5.0% the next.

Other nations that have shown positive signs have been Bolivia, with projected 4.8% growth in 2015, and Guatemala, with 4.0%.

The Colombian economy will also grow 3.5%, according to the World Bank, though this figure represents an almost one-percentage point drop on its January forecast for the country.

“A sharp depreciation also contributed to an increase in inflation in Colombia, where it has breached the central bank’s upper target limit,” the bank said.

The World Bank pointed that adapting to this new era of lower oil and commodity prices posed a major difficulty for developing economies, especially when rising financing costs were also factored in.

“Fasten your seatbelts because there will be bumps ahead,” said the chief economist, who nevertheless sees a gradual improvement on the horizon.