The region, up until 2014, was basking in strong growth due to high commodity prices and fiscal spending from governments with strong exports. The recent world wide downturn in commodity prices due to demand from a slowing Chinese economy and dropping oil prices have effected many countries to the point that governments have been ousted and others, like Venezuela, have declared a state of emergency.
Local currencies have been hardest hit in countries like Argentina with the peso plunging over 40 percent against the US Dollar or Venezuela, in economic turmoil, has seen that same plunge this month alone!
According to the IMF, “Brazil, the largest country in South America, faces a recession of 3.8 percent, Argentina a recession of 1 percent, and Venezuela, the country with one of the largest oil reserves in the world, will see its economy shrink by a staggering 8 percent.”
The drop in oil prices and other commodities have squeezed the economies of petroleum dependent countries like Venezuela ( oil is 96% of its export earnings) but also food producing countries like Brazil and Argentina.
Nonetheless, the IMF noted that “regional recession … masks the fact that most countries continue to grow, modestly but surely”.
Mexico, for example, has an economy that is expected to stall this year but able to see more growth as the US economy continues to show signs of strength. Mexico’s top exports are vehicles and electronic equipment (nearly 50%) that both rely on the health of a strong US economy.
The other two silver linings in the region are Bolivia and Panama that show growth in a region of stalled economies.
Panama, like Mexico, will benefit from a resurgent US economy. The expansion of the Panama Canal zone, nonetheless, continues to push its revenue up as it is the most important source of income.
Bolivia won’t see the 6% increase in GDP per year that Panama is forecasted to see this year and next but it still has firm economic fundamentals with robust currency reserves, and tremendous mineral wealth like lithium that is in high demand for batteries that power computers, phones and electric cars.
According to the report, the poor economic performance in the region is due to “weak external demand, decreases in prices of raw materials, volatile financial conditions” and “significant internal imbalances.”