Global context for 2018 Momentum of global growth remains around - - PowerPoint PPT Presentation

Global context for 2018

▪ Momentum of global growth remains around 3.3% but with significant heterogeneity between countries ▪ Trade tensions increase uncertainties ▪ After historically low levels, financial volatility began to rise at the beginning of this year, with implications for sovereign risk

2.5 1.6 1.5 0.9 1.9 1.8 4.0 6.7 7.1 3.2 2.4 2.3 1.7 1.8 2.4 4.7 6.9 6.7 3.3 2.3 2.8 1.1 1.5 2.2 4.8 6.6 7.3 3.2 2.1 2.3 1.0 1.4 1.9 4.8 6.3 7.5 1 2 3 4 5 6 7 8 World Developed economies United States Japan United Kingdom Eurozone Emerging market and developing economies China India 2016 2017 2018 2019

GDP GROWTH RATES, 2016 TO 2019ab

(In percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations, World Economic Situation and Prospects, Update as of mid-2018, New York, June 2018; International Monetary Fund (IMF), July 2018, Capital Economics, June 2018; European Commission, May 2018 y European Central Bank, June 2018.

a Values for 2018 and 2019 correspond to forecasts. b Values for India correspond to the fiscal year that begins in April and ends in March of the following year.

Global economic growth for 2018 is forecast around 3.3% but with greater uncertainty without the synchronicity of growth in 2017

• 20
• 15
• 10
• 5

5 10 15 20 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18

Jan 2003 - Jun 2007 8% Jul 2011 - Dec 2015 2% 2016 1.5% 2017 4.6% Forecast 2018 3.1%

Structural slowdown of world trade post subprime crisis; in 2018 this is further impacted by trade tensions

YEAR-ON-YEAR VARIATION IN GLOBAL TRADE VOLUMES, JANUARY OF 2003 TO MAY OF 2018

(In percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Netherlands Bureau of Economic Policy Analysis (CPB), World Trade Monitor, 2018 and World Trade Organization (WTO), for forecasts of 2018.

After closing 2017 at historically low levels, financial volatility has risen sharply this year

FINANCIAL MARKET VOLATILITY INDICIES, JANUARY 2016 TO JULY 2018

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bloomberg. Note: VIX is prepared by the Chicago Board Options Exchange (CBOE) from S&P 500 call and put option prices, and measures expected volatility over the next 30 days. Following the same logic, the CBOE also produces the VXEEM index, which measures volatility in emerging markets, while Deutsche Börse and Goldman Sachs produce the V2X index, which measures eurozone volatility.

▪ Geopolitical risks and growing trade tensions ▪ Increases in the the interest rate

• f the FED

▪ Generalized depreciations with respect to the dollar ▪ Rising uncertainty is accompanied by greater sensitivity and reaction

5 10 15 20 25 30 35 40 45 1-ene-16 1-feb-16 1-mar-16 1-abr-16 1-may-16 1-jun-16 1-jul-16 1-ago-16 1-sep-16 1-oct-16 1-nov-16 1-dic-16 1-ene-17 1-feb-17 1-mar-17 1-abr-17 1-may-17 1-jun-17 1-jul-17 1-ago-17 1-sep-17 1-oct-17 1-nov-17 1-dic-17 1-ene-18 1-feb-18 1-mar-18 1-abr-18 1-may-18 1-jun-18 1-jul-18 Índice VIX Índice V2X (EURO STOXX) Índice VXEEM (Mercados Emergentes)

Elecciones en EEUU Elecciones en Francia Tensiones EEUU con Corea del Norte Sell-out de bolsas Anuncio tarifas al acero y al aluminio por parte de EEUU Aumento de tensiones comerciales EEUU con China EEUU impone nuevos aranceles a China con represalias inmediatas BREXIT

Incertidumbre política en Italia

5 10 15 20 25 30 35 40 45 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 VIX Index EURO STOXX V2X Index Emerging Markets VXEEM Index Elections in the USA Elections in France Tensions between USA and North Korea Sell-out de bolsas Steel and aluminum tariffs announced in USA Increase in trade tensions between the USA and China USA imposes new tariffs on China with immediate retaliation BREXIT Political uncertainty in Italy

• 50

50 100 150 200 250 300 350 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18

Capital flows toward emerging markets registered a sustained increase in 2017, but have declined in 2018 and Latin America is no exception

LATIN AMERICA (13 COUNTRIES): PROXY INDICATOR OF CAPITAL FLOWS TO THE REGION, JANUARY 2016 TO MAY 2018 (Index base January 2016=100, 12 month moving average)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

CAPITAL FLOWS TO EMERGING MARKETS, 12-MONTH CUMULATIVE FLOWS, JANUARY 2015 TO APRIL 2018a (In billions of US dollars)

40 50 60 70 80 90 100 110 120 130 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18

300 350 400 450 500 550 600 650 700 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18

Sovereign risk began to rise in February in line with the increased tension in global financial markets

LATIN AMERICA (13 COUNTRIES): SOVEREIGN RISK ACCORDING TO THE EMERGING MARKET BOND INDEX GLOBAL (EMBIG), JANUARY 2012 TO JUNE 2018 (Basis points)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of JP Morgan.

31-Dec-15 31-Dec-16 31-Dec-17 29-Jun-18 Argentina 438 455 351 608 Bolivia 250 83 203 295 Brasil 548 330 232 326 Chile 253 158 117 144 Colombia 317 225 173 197 Dominican Rep. 421 407 275 348 Ecuador 1,266 647 459 761 Mexico 315 296 245 281 Panama 214 187 119 152 Paraguay 338 281 200 245 Peru 240 170 136 166 Uruguay 280 244 146 200 Venezuela 2,807 2,168 4,854 5,011 Latin America 605 473 419 497

• 5
• 4
• 3
• 2
• 1

1 2 3 4 5 I II III IV I II III IV I II III IV I II III IV I II 2014 2015 2016 2017 2018 Latin America Mexico and Central America South America

Latin America exhibits on average a slow rate of economic growth in 2018 with significant subregional differences

LATIN AMERICA: YEAR-ON-YEAR CHANGE IN QUARTERLY GDP, 2014 TO 2018 (Percentages, on the basis of 2010 constant dollars)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

• 6
• 4
• 2

2 4 6 8 I II III IV I II III IV I II III IV I II III IV I 2014 2015 2016 2017 2018

South America

• 4
• 2

2 4 6 8 I II III IV I II III IV I II III IV I II III IV I 2014 2015 2016 2017 2018

Mexico and Central America

• 6
• 4
• 2

2 4 6 8 I II III IV I II III IV I II III IV I II III IV I 2014 2015 2016 2017 2018

Latin America

Private consumption General government consumption Gross fixed capital formation Inventories Exports of goods and services Imports of goods and services Producto interno bruto a precios de mercado

Domestic demand is the principal driver of GDP growth

LATIN AMERICA: GDP GROWTH RATES AND CONTRIBUTION OF EXPENDITURE COMPONENTS TO GROWTH, 2014 TO 2018 (Percentages, on the basis of 2010 constant dollars)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

2016 2017 2018 CENTRAL AMERICA AND MEXICO Current account

• 2.1
• 1.7
• 1.9

Goods

• 3.7
• 3.4
• 3.7

Services 0.8 0.8 0.8 Income

• 3.0
• 2.8
• 2.9

Current transfers 3.8 3.8 3.9 SOUTH AMERICA Current account

• 1.8
• 1.3
• 1.4

Goods 1.8 2.3 2.5 Services

• 1.6
• 1.5
• 1.7

Income

• 2.5
• 2.7
• 2.8

Current transfers 0.6 0.5 0.6 THE CARIBBEAN Current account

• 5.9

1.0 Goods

• 12.3
• 5.4

Services 4.0 1.9 Income

• 2.9
• 1.9

Current transfers 5.3 6.4 Components of the current account by subregion (Balances as percentage of GDP)

The current account deficit widened slightly in 2018

LATIN AMERICA (19 COUNTRIES): BALANCE-OF-PAYMENTS CURRENT ACCOUNT BY COMPONENT, 2009 TO 2018a (Percentages of GDP)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

a Values for 2018 correspond to forecasts.

• 0.7
• 2.0
• 2.0
• 2.3
• 2.7
• 3.1
• 3.3
• 1.9
• 1.4
• 1.6
• 5
• 4
• 3
• 2
• 1

1 2 3 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Current transfers balance Income balance Services balance Goods balance Current account balance

Commodity prices rose this year, but less that in 2017 and the increase is concentrated in crude oil

VARIATION IN INTERNATIONAL COMMODITY PRICES, 2016 TO 2018a

(Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of figures from World Bank, International Monetary Fund (IMF), Economist Intelligence Unit and Bloomberg.

a Forecasts b Energy products include crude oil, natural gas and coal.

2016 2017 2018a Agricultural products

4 1 4

Foods, tropical beverages and oilseeds

6

• 1

3

Foods

9

• 1
• 1

Tropical beverages

1

• 2
• 6

Oils and oilseeds

3 10

Forestry and agricultural raw materials

• 2

5 9

Minerals and metals

• 1

23 6

Energy productsb

• 16

23 25

Crude oil

• 16

23 30

All commodities

• 4

15 11 All commodities excluding energy products 2 11 5

• 15
• 10
• 5

5 10 15 Latin America Brazil Exporters of minerals and metalsᵇ Exporters of agro-industrial productsᶜ Mexico Central America, Haiti and Dominican Rep. Exporters of hydrocarbonsᵈ The Caribbeanᵉ 2015 2016 2017 2018

• 28,7

Terms of trade improved in 2018 for the second consecutive year, although Central America and some Caribbean countries suffered a reverse due to higher energy prices

LATIN AMERICA AND THE CARIBBEAN (COUNTRIES AND SELECTED COUNTRY GROUPS): VARIATION IN THE TERMS OF TRADE, 2015 TO 2018a (Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

a Forecasts. b Chile y Peru. c Argentina, Paraguay, Uruguay. d Bolivia (Plur. State of), Colombia, Ecuador, Trinidad and Tobago and Venezuela (Bol. Rep. of). e Does not include Trinidad

and Tobago.

• 2.9
• 3.0
• 2.9
• 2.9

20.8 21.0 20.8 20.7 18.8 18.9 18.7 18.3

• 0.9
• 0.9
• 0.8
• 0.5
• 6
• 4
• 2

2 4 6 8 10 12 10 12 14 16 18 20 22 24 2015 2016 2017 2018 Overall balance (right axis) Total expenditure (left axis) Primary expenditure (left axis) Primary balance (right axis)

77 59 49 47 45 45 44 39 38 38 38 35 35 33 32 31 30 24 23 20 15 10 20 30 40 50 60 70 80 90 BRA ARG CRI SLV HON COL URY RDO ASUR LA-18 CENT PAN MEX HTI BOL NIC ECU CHL GTM PER PRY 2017 2018

Fiscal adjustment has concentrated on public spending to reduce the primary deficit and stabilize the trajectory of public debt

LATIN AMERICA: CENTRAL GOVERNMENT GROSS PUBLIC DEBT, 2017 AND SECOND QUARTER OF 2018 (Percentages of GDP)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

a Simple averages. Figures for 2018 correspond to forecasts from official sources. In the cases of Mexico and Peru the figures refer to the federal public

sector and the general government, respectively.

LATIN AMERICA (17 COUNTRIES): CENTRAL GOVERNMENT FISCAL INDICATORS, 2015 TO 2018a (Percentages of GDP)

LA-18 average 2017: 38.8% of GDP 2018 (2th qtr): 38% of GDP

103 89 89 69 69 68 65 65 63 6… 62 59 50 47 20 40 60 80 100 120 JAM BRB BLZ SUR CAR-13 LCA ATG GRD BHS VCT DMA TTO KNA GUY 2017 2018

The Caribbean has made efforts to maintain the trend towards primary surpluses, but public debt remains elevated due to its high vulnerability

THE CARIBBEAN: CENTRAL GOVERNMENT GROSS PUBLIC DEBT, 2017 AND SECOND QUARTER OF 2018 (Percentages of GDP)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

a Simple averages. Figures for 2018 correspond to forecasts from official sources.

THE CARIBBEAN (12 COUNTRIES): CENTRAL GOVERNMENT FISCAL INDICATORS, 2015 TO 2018a (Percentages of GDP)

CAR-13 average 2017: 68.6% of GDP 2018 (2th qtr): 68.6 % of GDP

• 2.5
• 2.4
• 2.1
• 1.5

29.2 28.7 27.8 28.2 26.0 25.5 24.6 24.8

0.8 1.0 1.1 1.9

• 6
• 4
• 2

2 4 6 8 10 12 10 12 14 16 18 20 22 24 26 28 30 2015 2016 2017 2018 Overall balance (right axis) Total expenditure (left axis) Primary expenditure (left axis) Primary balance (right axis)

Tax revenues remain stable… while the composition of public spending changes: lower investment and higher interest payments

LATIN AMERICA AND THE CARIBBEAN: DISAGGREGATION OF TOTAL EXPENDITURES OF THE CENTRAL GOVERNMENT, 2016 TO 2018a (Percentages of GDP)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

a Simple averages. Figures for 2018 correspond to forecasts from official sources. In the cases of Mexico and Peru the figures refer to the federal public

sector and the general government, respectively.

LATIN AMERICA AND THE CARIBBEAN: DISAGGREGATION OF TOTAL REVENUES OF THE CENTRAL GOVERNMENT, 2016 TO 2018a (Percentages of GDP) 15.3 15.4 15.5 20.9 20.9 21.4 2.5 2.5 2.3 5.6 4.8 5.3 18.0 17.9 17.8 26.5 25.7 26.7 5 10 15 20 25 30 2016 2017 2018 2016 2017 2018 Latin America (17 countries) The Caribbean (12 countries) Tax revenues Other revenues

15.3 15.2 15.0 21.6 21.3 21.1 3.6 3.4 3.3 3.9 3.3 3.7 2.1 2.2 2.3 3.2 3.2 3.3 21.0 20.8 20.7 28.7 27.8 28.2 5 10 15 20 25 30 35 2016 2017 2018 2016 2017 2018 Latin America (17 countries) The Caribbean (12 countries) Primary current expenditure Capital expenditures Interest

2 4 6 8 10 12 14 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Latin America and the Caribbean excl Venezuela (Bol. Rep. of) South America excl Venezuela (Bol. Rep. of) Central America and Mexico The Caribbean

Towards the end of the first half of the year inflation has remained within the expected ranges

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

LATIN AMERICA AND THE CARIBBEAN: YEAR-ON-YEAR VARIATION IN CONSUMER PRICE INDEX, WEIGHTED AVERAGE, JANUARY OF 2013 TO JUNE OF 2018 (Percentages)

Annual inflation rate (End of period) 2016 2017 2018ᵃ

Latin America and the Caribbean excl (Bol. Rep. of)

7,3 5,7 5,9

South America excl Venezuela (Bol.

• Rep. of)

9,1 5,3 6,5

Central America and Mexico

3,7 6,4 4,8

The Caribbean

5,4 3,7 2,5 ᵃ F

igures to J une.

The direction of monetary policy in 2017 has in general continued in 2018

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

LATIN AMERICA (SELECTED COUNTRIES): MONETARY POLICY RATE IN COUNTRIES WHICH USE THE RATE AS THEIR PRINCIPAL INSTRUMENT, JANUARY OF 2013 TO JUNE OF 2018 (Percentages)

0.0 2.5 5.0 7.5 10.0 12.5 15.0

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May 2013 2014 2015 2016 2017 2018

Brazil Chile Colombia Peru Guatemala Honduras Paraguay Dominican Rep. 5 10 15 20 25 30 35 40 45 0.0 2.5 5.0 7.5 10.0

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May 2013 2014 2015 2016 2017 2018

Costa Rica Mexico Argentina (right axis)

4.2 3.9 2.4 4.3 0.7 3.1 1.8 2 0.7 2.6 1.9 2 1.8 0.8 2.7 1.4 1.2 0.3 7.5 3.8 2.3 2.2 1.5 3.7 0.9 2.2 0.8 1 2 3 4 5 6 7 8 Argentina Brasil Chile Colombia Jamaica Mexico Paraguay Uruguay Trinidad and Tobago 2016 2017 2018

After falling in 2017, exchange rate volatility rose in the first seven months of 2018, conditioning monetary action…

LATIN AMERICA AND THE CARIBBEAN (SELECTED COUNTRIES): NOMINAL EXCHANGE RATE VOLATILITY, 2016 TO 2018a (Average of the absolute value of the month-on-month variation, percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

a Figures to July.

Reserves have increased in the first six months of 2018, but at a slower pace

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

a Figures to June.

LATIN AMERICA AND THE CARIBBEAN: EVOLUTION OF INTERNATIONAL RESERVES, 2000 TO 2018a (Billions of dollars and percentages of GDP)

862 2 4 6 8 10 12 14 16 18 20 100 200 300 400 500 600 700 800 900 1,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018ᵃ Gross international reserves (left axis) In percentages of GDP (right axis)

16.0 15.8 17.0 21.2 22.7 22.9 7.1 6.9 7.3 8.9 9.3 9.2 5 10 15 20 25 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 2013 2014 2015 2016 2017 2018ᵃ Urban unemployed (in millions) Open urban unemployment rate Urban unemployed (right axis) Open urban unemployment rate (left axis)

The labour market exhibits a moderate improvement: the urban unemployment rate decelerates and unemployment declines

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

a Estimates.

LATIN AMERICA AND THE CARIBBEAN: RATE AND NUMBER OF URBAN UNEMPLOYED (Percentages)

In sum, the forecasts for 2018 consider an international environment where:

• 1. Global growth continues in 2018 but with heterogeneity

among countries.

• 2. Global trade loses dynamism with respect to 2017, aggravated

by trade conflicts.

• 3. Commodity prices improve but less than in 2017 and the

improvement is very concentrated in crude oil.

• 4. Capital flows to emerging markets decline in 2018, sovereign

risk levels increase and the propensity to take risks decreases.

• 5. Appreciation of the dollar and increased currency volatility.
• 6. Financial volatility, which had reached historically low levels in

2017, rises this year and is driven more by greater uncertainty.

(Percentages, on the basis of constant 2010 dollars)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

Latin America and the Caribbean: Forecasts of GDP growth rates for 2018

• 12,0
• 6,4
• 0,5

0,0 0,5 1,2 1,3 1,3 1,5 1,5 1,5 1,5 1,5 1,6 1,7 1,8 2,1 2,1 2,3 2,4 2,4 2,4 2,5 2,6 2,7 2,7 2,9 3,0 3,3 3,4 3,5 3,6 3,9 3,9 4,2 4,2 4,4 5,2 5,4

• 14
• 12
• 10
• 8
• 6
• 4
• 2

2 4 6 Venezuela (Bolivarian Republic of) Dominica Argentina Barbados Nicaragua SOUTH AMERICA Jamaica Saint Vincent and the Grenadines Ecuador Trinidad and Tobago Cuba LATIN AMERICA LATIN AMERICA AND THE CARIBBEAN Brazil THE CARIBBEAN Haiti Saint Lucia Mexico Uruguay El Salvador Saint Kitts and Nevis CENTRAL AMERICA AND MEXICO The Bahamas Belize Colombia Suriname Guatemala Guyana Costa Rica CENTRAL AMERICA Granada Peru Chile Honduras Bolivia (Plurinational State of) Antigua and Barbuda Paraguay Panama Dominican Republic

This environment results in a downward revision in the projected growth of the region for this year although it is expected to be greater than that of

• 2017. The average

expected rate for LAC is 1.5% (1.2% in 2017) with important differences between subregions.

The second part of the Economic Survey focuses on a structural analysis of investment in Latin America and the Caribbean for the period 1995-2017

• The dynamics of investment are a key factor in understanding

not only the behavior of the economic cycle but also growth in the medium and long-term.

• The document presents:

– Stylized facts of the evolution of investment between 1995 and 2017: at the aggregate, sectoral and company level. – An empirical analysis of the determinants of investment in Argentina, Colombia and Mexico. – An overview of the characteristics of the cycle of investment – The main macroeconomic and microeconomic determinants

• f selected countries in Latin America and the Caribbean

17 18 19 20 21 22 23 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Cycle Trend

In the last two decades investment has displayed trend growth (1995-2012) and a later deceleration (2013-2017)

Source: Economic Commission for Latin America and the Caribbean, on the basis of official data and World Development Indicators (2018).

LATIN AMERICA AND THE CARIBBEAN: EVOLUTION OF THE TREND AND CYCLE OF GROSS FIXED CAPITAL FORMATION, 1995 TO 2017 (Percentages of GDP)

Between 1995 and 2013 investment increased from 18.5% to 20.7% as a share of GDP and then decreased between 2013 and 2017.

1995-2002 2003-2012 2013-2017 2.6 5.8

• 1.9

Growth rate of investment

LAC has closed investment gaps with respect to other regions between 1995-2016

GROSS FIXED CAPITAL FORMATION GAP OF LATIN AMERICA AND THE CARIBBEAN WITH RESPECT TO OTHER REGIONS OF THE WORLD, 1995 AND 2016 (Percentages of GDP)

Source: Economic Commission for Latin America and the Caribbean, on the basis of official data and World Development Indicators (2018).

2.4 7.4 4.0 2.1 1.2 5.6 0.8 0.4 1 2 3 4 5 6 7 8 Europe and Central Asia East Asia and Pacific Middle East and North Africa United States 1990 2016

Investment in machinery and equipment has been dynamic but its share of total investment remains low

• The high concentration of investment in a few companies presents the

important challenge of increasing the participation of SMEs in investment and the productive structure

• A sample of 2,228 companies from Argentina, Brazil, Chile, Colombia, Mexico

and Peru indicates that 10% of these companies comprise more than 70% of private investment

COMPONENTS OF GROSS FIXED CAPITAL FORMATION, 1995-2016 (Percentages)

Source: Economic Commission for Latin America and the Caribbean, on the basis of official data and EUKLEMS.

Latin America Europe United States Total construction 67.5 55.7 41.7 Machinery and equipment 32.5 44.3 58.3 Total construction 1.8

• 0.8

4.3 Machinery and equipment 6.7 2.4 2.0 Share of total investment (%) Growth rates (%)

A strategic view of public investment is required and its decline reversed in order to bolster the provision of public goods and attract private investment

2 4 6 8 10 12 14 16

Bolivia Panama Ecuador Honduras Latin America (17 countries) Chile Nicaragua Paraguay Peru Brazil Mexico Uruguay Argentina Dominican Republic El Salvador Costa Rica Guatemala Colombia

2017 2009 Average 2000 Source: Economic Commission for Latin America and the Caribbean, on the basis of official data. * Public investment is defined as capital expenditure by the public sector (net of intergovernmental transfers)

Latin America (17 Countries): Public Investment by country, 2000, 2009 and 2017* (Percentages of GDP)

Public investment in Mexico fell 5% annually in real terms between 2012 and 2017

GOVERNMENT INVESTMENT, 2009 AND 2016 (Percentages of GDP)

Source: OECD National Accounts Statistics database.

Similar to the rest of the region, in Mexico the contribution of investment to growth has fallen

▪ The contribution of investment to the economic growth of Mexico has diminished since the seventies. In the period 2010-2015 the contribution of investment to growth was only 0.5%, much below that of exports (1.8%) and total consumption (2.1%).

Period GDP growth Investment Exports Imports Total consumption 1961-69 5.8% 1.1% 0.3%

• 0.3%

4.7% 1970-81 6 .3% 1.5% 0.6%

• 0.7%

4.8% 1982-87 0.0%

• 1.6%

0.7% 0.9%

• 0.1%

1988-94 3.1% 1.0% 0.6%

• 0.9%

2.4% 1995-2000 2.7% 0.7% 1.6%

• 1.5%

1.7% 2001-2008 2.0% 0.7% 0.7%

• 1.1%

1.9% 2009

• 4.7%
• 2.1%
• 3.3%

5.3%

• 4.1%

2010-2015 2.6% 0.5% 1.8%

• 1.7%

2.1%

MEXICO: CONTRIBUTIONS TO REAL GDP GROWTH BY COMPONENTES OF DEMAND AND SUPPLY, 1960-2015 (Percentage points)

Note: the figures of the second to fourth columns represent the weighted contributions of each component the average growth rate

• f real GDP, in percentage points.

Source: Economic Commission for Latin America and the Caribbean, on the basis of official data.

Investment determinants for designing public policies

Size and productive structure are important:

▪ In large economies, GDP, the productive structure and the domestic market are the most important variables along side the interest rate and the exchange rate; ▪ In medium-sized economies whose structure depends on natural resources, the prices of commodities is the key variable; ▪ In small countries, integrated investments that articulate economies of scale are crucial; ▪ Regional integration is essential to stimulate investment

Economic activity Commodities prices Foreign interest rate EMBI Monetary policy rate Real exchange rate Large countries 60.8 7.4 5.2 10.8 5.6 10.8 Medium sized countries 29.5 44.4 8.3 5.4 3.9 8.7 PERCENTAGE THAT EXPLAINS THE DEVIATION OF GROWTH OF INVESTMENT EACH VARIABLE WITH RESPECT TO ITS AVERAGE, 2004-2016

Source: Economic Commission for Latin America and the Caribbean, on the basis of official data.

In conclusion…

▪ The region must revive spending on gross fixed capital formation ▪ The region demonstrated a rising trend in the period 1995- 2013, which closed investment gaps with other regions ▪ However, since 2013 investment has decreased ▪ In addition to raising the volume of investment, the region has the challenge of shifting its composition towards machinery and equipment, which contributes more to technological innovation ▪ A strategic view of public investment is required for the provision of public goods and to attract private investment ▪ Public policies are necessary to drive investment in SMEs in

• rder to reverse the elevated concentration in a few companies