Economic Outlook for Latin America in 2018

On a yearly basis, the International Monetary Fund (IMF) issues macroeconomic reports on the status of all regions of the world as well as economic growth forecasts for each country. A few weeks ago, the IMF revised its growth forecasts for Latin America during 2018 and the outlook is better than previous expected. Overall, Latin America and the Caribbean are expected to grow 1.9% in 2018. However, without Venezuela, whose economy is expected to shrink by almost 15% this year, Latin America and the Caribbean will grow by 2.5% as a whole. In the case of South America, the outlook is 1.5% economic growth including Venezuela, and 2.4% excluding Venezuela. Meanwhile, Central America’s economy is expected to grow 3.9% and the Caribbean is expected to grow by 3.9%.

Economic Outlook for Latin America in 2018

By country, the largest economic growth should come from the Dominican Republic with 5.8%; Panama with 5.6%; Nicaragua with 4.3%; Bolivia, Peru, and Paraguay each with 4.0%; and Costa Rica with 3.8%. In the case of Colombia, its economy is expected to grow by 3.0% during 2018. Some of the main drivers behind the economic optimism in Latin America and the Caribbean are the increase in global economic activity, including in the United States; the increase in foreign investment into the region, particularly by Asian and North American capital; and the increase in international commodity prices, namely fossil fuels. For instance, the reference price for West Texas Intermediate (WTI) crude oil has risen steadily from US$47.42 in August 2017 to US$65.41 in January 2018.

Coupled with sound governance, monetary stability, and fiscal responsibility, these trends are already yielding positive economic results throughout the region. In fact, according to the Foreign Exchange Index for the last three months, selected Latin American currencies have made substantial gains in value against the United States Dollar (USD). Throughout the last three months, the South African Rand has had the largest recorded gain against the USD at 18.2%. Nevertheless, the Colombian Peso (COP) is the second currency in terms of value gained against the USD at 9.5%. Currently, the Colombian Peso is trading at approximately 2.800 COP to 1 USD. Similarly, during the last three months, the Chilean Peso (CLP) has gained 6.3% against the USD and the Brazilian Real (BRL) has gained 4.3%.

Much of this currency strengthening, particularly in the case of Colombia, stems from the fact that international petroleum prices are on the rise again. In turn, rising oil prices are due mainly to the continued enforcement of the collective production cuts that the Organization of Petroleum Exporting Countries (OPEC) members and other major producers, namely Russia, have been enforcing and enduring since January 2016. In their most recent meeting during the past month of December at the OPEC headquarters in Vienna, all countries agreed to continue with the production adjustments in the hopes of decreasing global supply throughout 2018.

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