Alejandro Werner - Latin America and the Caribbean. FGV’s Brazilian Institute of Economics (IBRE) held, on 19 September 2014, the international seminar “Latin America and new global economic conditions”. The event addressed the issue of Latin American perspectives given imposed change, among other factors, caused by the slowdown in China and the gradual normalization of US monetary policy. The meeting was organized in three panels, which included national case studies from Argentina, Brazil, Chile, Colombia and Mexico. Visit FGV/IBRE's website at: http://www.fgv.br/ibre

1. América Latina
Latin America and the Caribbean:
Lower Growth, Rising Challenges
Alejandro Werner | 2014
A AMÉRICA LATINA
E AS NOVAS CONDIÇÕES
ECONÔMICAS MUNDIAIS
seminário

2. Latin America and
the Caribbean:
Lower Growth, Rising
Challenges
Alejandro Werner
Director, Western Hemisphere Department
September 19, 2014

3. The global recovery remains relatively
subdued
Selected Projections for Real GDP Growth
(Percent)
2012 2013 2014 2015
World 3.5 3.2 3.4 4.0
Advanced Economies 1.4 1.3 1.8 2.4
Euro Area -0.5 -0.4 1.1 1.6
United States 2.8 1.9 1.7 3.0
Japan 1.4 1.5 1.6 1.1
Emerging Market and Developing Economies 5.1 4.7 4.6 5.2
Asia 6.7 6.6 6.4 6.7
Europe 1.4 2.8 2.8 2.9
Latin America and the Caribbean 2.9 2.6 2.0 2.6
Source: IMF, World Economic Outlook July 2014 Update.

4. U.S. growth is expected to remain solid, after a
temporary setback in Q1
 2014Q2 rebound after
temporary setback in Q1
 Signs of firming recovery
continue to accumulate
 U.S. economy projected to
grow at 3+ percent in 2014H2
-4
-3
-2
-1
0
1
2
3
4
5
2013Q2 2013Q3 2013Q4 2014Q1 2014Q2
Government consumption and investment
Personal consumption expenditure
Net exports
Change in private inventories
Non-residential investment
Residential investment
Real GDP
growth
USA: Contributions to GDP Growth
(Percent change from previous quarter)

5. Investment and housing are key drivers of
the economic rebound in the United States
800
900
1.000
1.100
1.200
4.500
4.700
4.900
5.100
5.300
5.500
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
Housing Starts (RHS)
Total Existing Home Sales (LHS)
Housing Activity
(SAAR, thousand units)
-30
-20
-10
0
10
20
30
-20
-15
-10
-5
0
5
10
15
2000 2003 2006 2009 2012 2015
Business Investment (LHS)
Duke CFO Survey: Expected Capital Spending (12 mo.
ahead, LHS)
Philly Fed Survey: Expected Capital Spending (6 mo.
ahead, RHS)
Leading Indicators of Capital Spending
(Percent change, year ago)

6. Labor market slack has declined, but remains
sizeable, keeping wage pressures in check
0
2
4
6
8
10
12
14
16
18
1994 1998 2002 2006 2010 2014
Part-time for economic reasons
Marginally attached
Long-term unemployed
Short-term unemployed
Labor Market Slack: Components of U-6
Unemployment Rate
(Percent of labor force)
0
1
2
3
4
5
2008 2009 2010 2011 2012 2013 2014
Employment Cost Index
Average hourly earnings
Compensation per hour (6-quarter moving average)
Nominal Wages
(Percent, year-on-year)

7. Recent euro area activity data have disappointed,
while inflation has continued to grind lower…
0,0
0,5
1,0
1,5
2,0
2,5
3,0
jan/12
abr/12
jul/12
out/12
jan/13
abr/13
jul/13
out/13
jan/14
abr/14
jul/14
Inflation
2-year expectations
5-year expectations
Inflation and Inflation Expectations
(Percent)
Sources: Haver Analytics; and IMF staff calculations.
42
44
46
48
50
52
54
56
-120
-100
-80
-60
-40
-20
0
20
40
60
80
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Economic Surprise Index
Manufacturing PMI (right scale)
Economic Surprise Index and PMI
(Index)
Source: Bloomberg.

8. … as financial fragmentation and
geopolitical tensions weigh on the recovery
Source: ECB SAFE Survey.
Gas Energy Imports Exports Inward
FDI
Outward
FDI
Bank
Claims
FIN
AUT
GRC
LUX
ITA
DEU
NLD
BEL
CYP
CHE
IRL
SWE
FRA
Dimensions of Exposure to Russia
0
1
2
3
4
5
6
7
8
jan/05
set/05
mai/06
jan/07
set/07
mai/08
jan/09
set/09
mai/10
jan/11
set/11
mai/12
jan/13
set/13
mai/14
Core
Stressed Countries
ECB Policy Rate
Euro Area Corporate Lending Rates
(Loans less than 1 million euro, Percent)
Sources: Haver Analytics; and IMF staff calculations.

9. In China, growth appears to have stabilized but the
massive post-2008 credit boom casts a shadow…
GDP growth recovered in Q2 and is likely to
achieve the full-year target...
0
2
4
6
8
10
12
14
16
18
20
22
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q4
Year-on-year
Staff estimates,
Q/Q SAAR
Official, Q/Q SAAR
Real GDP Growth
(Percent)
Sources: CEIC; and IMF staff calculations.
… but financial sector risks related to past
credit growth are significant.
Stock of Total Social Financing¹
(Percent of GDP)
109
146
15
55
5
10
129
212
0
50
100
150
200
250
2003 2006 2009 2012
Non-fin enterprise equity and other
Entrustred loans, trust loans, bank acceptance, net
corporate bond financing
Bank loans
2008Q4
2014Q2
2014Q2
Sources: CEIC; and IMF staff calculations.
1 In percent of 4Q rolling sum of quarterly GDP.

10. … while weakness in the real estate sector
remains a key risk
The slowdown in real estate has been a
drag on activity.
0
10
20
30
40
50
60
60
80
100
120
140
160
180
200
220
240
dez/06 mar/08 jun/09 set/10 dez/11 mar/13 jun/14
Investment growth (%, year-on-year; RHS)
Price
Floor space sold
Residential Housing
(Dec. 2006 = 100, SA, 3mma)
Sources: CEIC; and IMF staff calculations.
Property prices are overvalued.
-50
-30
-10
10
30
50
70
2005 2006 2007 2008 2009 2010 2011 2012 2013 14Q1
Beijing
Shanghai
Tianjin²
Guangzhou
Shenzhen
Residential Property Price:1 Deviation from Benchmark
(Percent)
Sources: CEIC; WIND Info; Ahuja et al. (2010); and IMF staff
calculations.
1 Secondhand residential housing price.
2 2014:Q1 price for Tianjin based on January-February average.

11. Selected Projections for Real GDP Growth
(Percent)
0
10
20
30
40
50
60
70
80
90
100
2004 2006 2008 2010 2012 2014
Global
Financial
Crisis
Current
Slowdown
EM Slowdown
(Share of EM countries with real GDP growth
below the 2003-07 average, percent)
Sources: IMF, World Economic Outlook; and staff calculations.
The growth momentum in most emerging
economies has weakened
2010 2011 2012 2013 2014 2015
Brazil 7.5 2.7 1.0 2.5 1.3 2.0
China 10.4 9.3 7.7 7.7 7.4 7.1
India 10.3 6.6 4.7 5.0 5.4 6.4
Russia 4.5 4.3 3.4 1.3 0.2 1.0
South Africa 3.1 3.6 2.5 1.9 1.7 2.7
Source: IMF, World Economic Outlook July 2014 Update.

12. Latin America and the Caribbean, in particular,
is facing a subdued outlook for growth…
Latin America and the Caribbean: Real GDP Growth
(Percent)
Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations.
-4
-2
0
2
4
6
8
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
Avg. 1980-89=2.1
Avg. 1990-2002=2.6
Avg. 2003-12=4.1
Avg. 2013-19=2.9

13. …partly reflecting reduced momentum in global
commodity markets, amid China’s slowdown…
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0
Commodity Exporters Non-commodity Exporters
1990-2002 2003-2013
Sources: IMF, World Economic Outlook July 2014 Update;
and IMF staff calculations.
¹ PPP-weighted average of all Latin American countries.
Latin America: Real GDP Growth
(Percent, year-on-year)
-7
-2
3
8
13
18
1990 1995 2000 2005 2010
Commodity Exporters¹ China
Real GDP Growth
(Percent, year-on-year)
Sources: IMF, World Economic Outlook July 2014
Update; and IMF staff calculations.
¹ PPP-weighted average of Argentina, Bolivia, Brazil,
Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and
Venezuela.

14. … following a period of extraordinary income
windfalls for the region’s commodity exporters…
Latin America’s income windfall in the last decade was several times larger than
historical precedents, and comparable only to the MENA oil exporters
Emerging Latin America and Selected Regions: Income Windfall during Terms-of-trade booms, 1970-2012 1
(Share of annual GDP)
1975
PER
ECU
1980
2000
NOR
AUS
CAN
EM Latin America
2000
RUS
UKR
BEL
2000
IDN
0,0
0,1
0,2
0,3
0,4
2000
SAU
KUW
0,0
0,4
0,8
1,2
1,6
2,0
2,4
2,8
3,2
1970 1985 1990 1995 2000
VEN
BOL
CHL
ARG
PER
PAR
COL
ECU
BRA
PAR
Sources: IMF, International Financial Statistics; and Adler & Magud (2013).
¹ Cumulative percentage change in terms of trade (of goods and services) from start to peak of each identified episode (that meet the criteria of at
least 15 percent cumulative and 3 percent average increase). Episodes are grouped in 5-year window s according to the date of their first year. Dotted
lines indicate group averages.
EM Europe AE MENA Oil
exporters
EM Asia
Bars: cumulative income windfall
Dots: Annual average (right scale)

15. LA Commodity Exporters: Real GDP Growth
by Sector, 2003-13¹
(Percent)
Sources: Haver Analytics; and IMF staff calculations.
¹ Simple average of Argentina, Brazil, Chile, Colombia,
Peru, Uruguay, and Venezuela.
… which supported activity throughout the whole
economy, pushing up real wages...
Sources: Haver Analytics; and IMF staff calculations.
1 Brazil: real salaries in manufacturing; Chile: real hourly
compensation; Colombia: real wage; Mexico: real hourly
earnings in manufacturing; Uruguay: real salaries.
2 Measured as output per employed person.
Real Wage and Productivity Growth, 2008-13
(Year-on-year percent change, simple average)
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
Brazil Chile Colombia Mexico Uruguay
Real wage¹ Productivity²
0 25 50 75 100 125
Mining and Oil
Agriculture and Livestock
Manufacturing
Electricity, gas, and water
Services
Construction

16. Sources: IMF, World Economic Outlook July 2014 Update;
and IMF staff calculations.
Ratio of Primary Government Expenditure to
Potential GDP, 2003-13
Private Sector Credit
(Percent of GDP)
-5
0
5
10
15
20
25
30
35
40
45
Ecuador
Argentina
Venezuela
Bolivia
Uruguay
Nicaragua
Paraguay
Mexico
Brazil
CostaRica
Panama
ElSalvador
Colombia
Peru
Chile
Honduras
Guatemala
LatinAmerica
Ratio in 2003 Change in ratio through 2013
Sources: IMF, World Economic Outlook July 2014 Update;
IMF, International Financial Statistics; and IMF staff
calculations.
0 20 40 60 80 100
Chile
Brazil
Paraguay
Colombia
Peru
Venezuela
Ecuador
Uruguay
Argentina
2003 2013
…and boosting consumption amid a sharp increase
in private sector credit and government expenditures

17. The terms-of-trade boom supported a robust
export growth…
80
100
120
140
160
180
200
220
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
volume value2/
Sources: WEO and IMF staff calculations.
¹ Simple average of Latin American countries.
² Total exports in US dollars deflated by the US producer price index .
Latin America: Total Exports
(Index, 2003=100, simple average1)

18. … while also benefitted investment
LA Commodity Exporters: Investment and
Terms of Trade¹
Sources: IMF, World Economic Outlook July 2014 Update;
and IMF staff calculations.
¹ PPP-weighted average of Argentina, Brazil, Chile,
Colombia, Peru, Uruguay, and Venezuela.
14
15
16
17
18
19
20
21
100
110
120
130
140
150
160
170
2003 2005 2007 2009 2011 2013
Investment (percent of GDP, right scale)
Terms of trade (index: 2003=100)
Selected LA: Investment
(Percent of GDP)
Sources: IMF, World Economic Outlook July 2014 Update;
and IMF staff calculations.
¹ Simple average.
0 5 10 15 20 25 30
Peru
Colombia
Chile
Mexico
Uruguay
Brazil
Venezuela
Argentina
Avg. 2002-04¹ Avg. 2010-12¹

19. Growth expectations have been revised
downward, notably for investment and exports…
Sources: IMF, World Economic Outlook July 2014 Update; and staff
calculations.
¹ Ratio of GDP levels between the July 2014 Update and September 2011
WEO projections. A value of 100 indicates no difference between the two
projections; values below 100 indicate downward revisions.
² Numbers refer to Latin America only, due to data availability constraints
for several Caribbean economies.
LAC: July 2014 WEO Path for GDP and Components
Relative to Sep. 2011 WEO Projections¹
(Percent)
80
85
90
95
100
105
2010 2011 2012 2013 2014 2015 2016
GDP
Fixed investment
Private consumption
Public consumption
Exports²
LA6: Real Investment Growth¹
(Percent)
0
2
4
6
8
10
12
14
2004-08 2010 2011 2012 2013 2014
Sources: IMF, World Economic Outlook July 2014 Update; and IMF
staff calculations.
¹ Simple average of Brazil, Chile, Colombia, Mexico, Peru, and
Uruguay.

20. …yet economic slack remains fairly limited,
judging from labor market data, inflation…
Sources: Haver Analytics; and IMF staff calculations.
1 Brazil latest data refer to April 2014.
2 Includes unemployed workers that sought employment within
the last 12 months.
LA6: Unemployment Rate
(Percent, seasonally adjusted)
LA6: Headline Less Inflation Target
(12-month percent change)
Sources: Haver Analytics; Bloomberg; national authorities; and
IMF staff calculations.
0
2
4
6
8
10
12
14
16
18
20
Brazil¹
Chile
Colombia²
Mexico
Peru
Uruguay
Range since 2003 Jul. 2014
-2
-1
0
1
2
3
4
5
6
Brazil
Mexico
Uruguay
Avg: CHL, COL, PER
2010 2011 20132012 Aug-14

21. LAC: External Current Account and Terms of Trade
Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations.
80
90
100
110
120
130
-5
-4
-3
-2
-1
0
1
2
3
1997 2000 2003 2006 2009 2012 2015
Current account balance (Percent of GDP)
Terms of trade (Index, 2000=100, right hand side)
…and persistent current account deficits,
despite still-favorable terms of trade…

22. LAC: Fiscal Indicators, 2003-15
Source: IMF, World Economic Outlook July 2014 Update.
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
20
22
24
26
28
30
32
34
36
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Primary Balance (RHS) Annual Revenue Primary Expenditure
… all of which argue against large fiscal stimulus today,
especially where buffers have eroded in recent years

23. By contrast, there is an urgent need for structural
reforms to address supply bottlenecks
0
20
40
60
80
100
Chile
Mexico
Uruguay
Brazil
Colombia
Peru
Chile
Mexico
Uruguay
Peru
Brazil
Colombia
Chile
Peru
Colombia
Mexico
Uruguay
Brazil
Learning
outcomes
(PISA)
Infrastructure
quality
(WEF)
Ease of doing
business
(WB)
Sources: OECD, PISA (2012) ; World Bank, Ease of Doing
Business database (2013); World Economic Forum, Global
Competitiveness Report (2013–14); and IMF staff calculations.
¹ The scale reflects the percentile distribution in all countries for
each respective survey; higher scores reflect higher
performance; PISA: Program for International Student
Assessment; WB: World Bank; WEF: World Economic Forum.
LA6: Structural Indicators¹
(Percentile ranks)

24. A snapshot of country-specific projections
Latin America and the Caribbean: Real GDP Growth
(Percent)
Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations and
projections.
1 Regional aggregates are purchasing-power-parity GDP-weighted averages unless otherwise
noted. Current account aggregates are U.S. dollar nominal GDP weighted averages. CPI
forecasts exclude Argentina.
2 Simple average for Brazil, Chile, Colombia, Mexico, Peru, and Uruguay.
3 Simple average for Argentina, Bolivia, Ecuador, Paraguay, and Venezuela.
4 Simple average. Includes Dominican Republic.
5 Simple average of The Bahamas, Barbados, Jamaica, and ECCU member states.
6 Simple average of Belize, Guyana, Suriname, and Trinidad and Tobago.
2012 2013 2014 2015
Latin America and the Caribbean (LAC)¹ 2.9 2.6 2.0 2.6
Financially-integrated LAC2
4.1 3.5 3.3 3.8
Brazil 1.0 2.5 1.3 2.0
Chile 5.5 4.2 3.2 4.1
Colombia 4.0 4.3 4.5 4.5
Mexico 4.0 1.1 2.4 3.5
Peru 6.3 5.0 5.5 5.8
Uruguay 3.9 4.2 2.8 3.0
Other commodity exporters3
3.1 5.6 2.6 2.4
Argentina 0.9 3.0 -0.5 0.0
Venezuela 5.6 1.0 -0.5 -1.0
Central America4
3.8 3.2 3.4 3.4
Caribbean
Tourism dependent5
0.1 0.7 1.4 1.9
Commodity exporters6
3.7 3.2 3.2 3.2

25. Downside risks continue to dominate
 A more pronounced slowdown in China would further
dampen demand for commodities
 Faster-than-expected normalization of U.S. monetary
policy could prompt a sharp correction in financial markets,
after an extended period of low volatility
 Risk of a shift toward more populist economic policies in
response to the regional slowdown, jeopardizing hard-won
macroeconomic stability