World Bank Cuts Its Latin America Growth Cal

(Bloomberg) -- The World Bank roughly halved its 2019 economic growth forecast for Latin America on a tougher global environment and Venezuela’s downward spiral.

Latin America and the Caribbean will expand 0.9 percent this year, down from the bank’s October forecast for 1.6 percent growth. The estimates include a 25 percent GDP plunge in Venezuela that’s triple the multilateral’s prior outlook, and a lower forecast for Mexico that reflects policy uncertainty.

World Bank Cuts Its Latin America Growth Cal

“Prospects for this year show no real improvement over 2018, as a result of weak or negative growth in the three largest economies in the region – Brazil, Mexico, and Argentina – and a total collapse in Venezuela,” according to the report, entitled ‘When Dreams Meet Reality.’ “The sharp drop in commodity prices – especially oil and copper – during the last months of 2018 and the deceleration of Chinese growth may turn into significant headwinds.”

Latin America has struggled to return to the levels of expansion seen during the boom years of soaring commodity prices. While signs that the U.S. Federal Reserve won’t raise its key rate again until 2020 will provide "a breather" to the region, a trend toward higher borrowing costs globally may prompt regional governments to keep monetary policy tight at the expense of growth, according to the report.

New 2019 Forecast
Prior 2019 Forecast
2020 Forecast
Latin America & Caribbean0.9%1.6%n/a
LatAm & Carib., ex. Venezuela1.9%2.1%2.7%

In Mexico, the region’s second-largest economy, President Andres Manuel Lopez Obrador has sent mixed signals about policy making. For example, he rattled financial markets by putting energy reforms on hold, but subsequently submitted a “relatively prudent” fiscal 2019 budget.

“Only time will tell which orientation will prevail,” the report said. “In the meantime, economic policy uncertainty is likely to force the central bank to maintain a tight monetary policy, which will hurt growth.”

Meantime, Venezuela’s economic catastrophe will see inflation reach 10 million percent in 2019, while the number of migrants who have fled the country surpasses 5 million, according to the report. Likewise, the World Bank cited unofficial sources indicating poverty reached 90 percent of the country’s population.

The multilateral is preparing “extremely ambitious” humanitarian aid for Venezuela which it will make available when conditions are appropriate, Carlos Vegh, the World Bank’s Chief Economist for Latin America, told reporters on a conference call.

©2019 Bloomberg L.P.