Latin America slowdown: the role of external factors

• Economic growth has been disappointing across the region despite well-behaved asset prices. This frustration with activity can be attributed to idiosyncratic factors or country-specific events, but we suspect that common determinants have played at least as important a role.

• We have identified three external factors (global growth, China’s growth and emerging economies’ sovereign credit risk) that explain a large portion of growth in each of the major Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico and Peru).

• In fact, the bulk of the slowdown in Latin American countries over the past few years can be attributed mainly to a less supportive external scenario relative to the terms-of-trade boom period.

• In some countries (mainly Brazil, but also Chile and Colombia), however, growth is worse than would be justified by external variables, indicating that idiosyncratic factors have also been a drag on growth. Between 2004 and 2007 and between 2010 and 2012, with the commodity boom and high global growth, the region1 grew by an average rate of 5.6% annually. In the most recent period (2013-2016), however, there was a considerable slowdown, with average growth receding to 1.9% per year.

Fuente: ITAU

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