Latin America Economic Outlook. First quarter 2015

Growth in LatAm will nudge upwards, albeit slowly, held back by lower commodity prices. Activity in the region should rise from 0.8% in 2014 to 1.5% and 2.4% in 2015 and 2016, pulled up by greater growth worldwide and heavier public investment in the Andean countries. The Pacific Alliance will grow by 3.6% and 3.8% in 2015 and 2016.The central banks continue to show a looser bias given the cyclical weakness and could even disengage from the Fed rate hikes, apart from in Mexico. Such a move would adversely affect capital inflows to Latin America. The weaker commodity prices not only bode ill for fiscal and current account prospects in the region but will also have a potentially depressing impact on FDI in the primary export sector. All of these factors will exert pressure on LatAm exchange rates to depreciate in 2015 and 2016, yet on balance the limited currency mismatch in the private sector will mean that the exchange rate will cushion rather than spread external shocks.

Authors

Geographies

Topics