Uncertainty and Deceleration The region is confronted with an - - PowerPoint PPT Presentation

Uncertainty and Deceleration

▪ The region is confronted with an external sector with growing uncertainties and complexity

▪ Subdued global economic activity and international trade ▪ Growing uncertainty, volatility and financial fragility ▪ Questioning of the multilateral trading system and an increase in geopolitical tensions

▪ The economic slowdown observed in the last five years continues

▪ Loss of dynamism in the engines of economic growth: no contribution to growth from investment and net exports ▪ Overall slowdown: 21 out of the 33 countries in Latin America and the Caribbean (17 out of 20 in Latin America)

Restricted macroeconomic policy space

▪ Restriction of the structural fiscal space that limits countercyclical policies ▪ Fiscal consolidation due to insufficient revenues to cover public spending ▪ Greater indebtedness has not translated into productive investment ▪ Higher depreciations would limit monetary stimuli to aggregate demand ▪ The fall in productivity and the export structure (reprimarisation) do not help to face external vulnerability

3.1 2.3 2.2 1.9 1.8 2.4 4.5 6.8 7.2 2.0 1.6 3.0 2.2 2.9 0.8 1.4 1.9 4.3 6.6 6.8 2.8 2.3 2.6 1.8 2.5 0.8 1.3 1.2 4.1 6.2 7.2 2.1 1.4 1 2 3 4 5 6 7 8

World Developed economies United States Japan United Kingdom Eurozone Emerging market and developing economies China Indiaᵇ Transition economies Russian Federation

2017 2018 2019

Synchronization in slowdown of global growth

SELECTED REGIONS AND COUNTRIES: GDP GROWTH RATE 2017, 2018 AND FORECASTS 2019

(Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on the median of various specialized sources: GEP data (World Bank, June 2019), OECD (Economic Outlook, May 2019), WEO (IMF, April 2019), European Commission (Spring 2019 Forecasts), Capital Economics (accessed June 11, 2019), European Central Bank (Projections as of June 6, 2019), WESP (United Nations, May 2019) and Central Bank of India ( accessed June 11, 2019).

• 20
• 15
• 10
• 5

5 10 15 20

Jan-03 Nov-03 Sep-04 Jul-05 May-06 Mar-07 Jan-08 Nov-08 Sep-09 Jul-10 May-11 Mar-12 Jan-13 Nov-13 Sep-14 Jul-15 May-16 Mar-17 Jan-18 Nov-18 Sep-19 Jan 2003 - Jun 2007 Jul 2011 - Dec 2015 2% 2016 1.5% 2017 4.8% 2018 3.4%

Marked weakening of world trade

YEAR-ON-YEAR CHANGE IN THE VOLUME OF WORLD TRADE, JANUARY 2003 TO APRIL 2019

(Based on deseasonalized index, three-month rolling window, in percentages)

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

SELECTED REGIONS AND COUNTRIES: YEAR- ON-YEAR CHANGE IN THE VOLUME OF WORLD TRADE

(Based on deseasonalized index, in percentages)

• 1

1 2 3 4 5 6 United States Eurozone Japan Other advanced economies Asian emerging economies 2017 2018 Jan-Apr (2019 vs 2018)

Greater global financial uncertainty…

INDICES OF VOLATILITY IN THE FINANCIAL MARKETS, JANUARY 2017 TO JUNE 2019

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on Bloomberg. Note: The VIX index, prepared by the Chicago Stock Exchange (CBOE), measures the expected volatility for the next 30 days and is obtained from the prices of the purchase and sale

• ptions of the S&P 500 index. The CBOE also produces the VXEEM index, which measures volatility in emerging markets, and Deutsche Börse, together with Goldman Sachs, prepares

the V2X index, which measures volatility in the euro area. 5 10 15 20 25 30 35 40 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 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 VIX Index V2X Index (EURO STOXX) VXEEM Index (Emerging markets)

Elections in France Tensions between the United States and North Korea Stock market sell-

• ff

Steel and aluminum tariffs announced in USA Increase in trade tensions between the USA and China Political uncertaint y in Italy USA imposes new tariffs on China with immediate retaliation Strong correction (sell-off) in the US stock market that moves to

• ther markets

Escalation of USA-China trade tensions (Huawei) Crisis in Turkey and increase in tensions with the USA Deadline for consultations for new US tariffs on China

…with a rise in the region’s sovereign risk as of the second quarter

• f 2019

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on Bloomberg.

LATIN AMERICA (13 COUNTRIES): SOVEREIGN RISK ACCORDING TO THE EMERGING MARKET BOND INDEX (EMBIG), JANUARY 2016 TO MAY 2019 (Values accumulated in twelve months. Base index January 2016 = 100)

300 350 400 450 500 550 600 650 700 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19

EMBIG index level at: 31-Dec-1631-Dec-1731-Dec-18 31-May- 19 Argentina 455 351 817 985 Bolivia 83 203 378 282 Brazil 330 232 273 267 Chile 158 117 166 145 Colombia 225 173 228 212 Ecuador 647 459 826 619 Mexico 296 245 357 329 Panama 187 119 171 159 Paraguay 281 200 260 245 Peru 170 136 168 148 Dominican Rep. 407 275 371 348 Uruguay 244 146 207 194 Venezuela 2168 4854 6845 5578

Latin America 473 419 568 527

20 40 60 80 100 120 140 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 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19

• 20
• 10

10 20 30 40 50

Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19

The trend of declining capital flows towards emerging economies is also observed in the region…

PORTFOLIO FLOWS TO EMERGING MARKETS (Billions of dollars, monthly average)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on information from the Monetary Policy Report of the Central Bank of Chile (June, 2019).

LATIN AMERICA (14 COUNTRIES): INDIRECT INDICATOR (PROXY) OF CAPITAL FLOWS TO THE REGION, JANUARY 2016 TO MARCH 2019 (Values accumulated in twelve months. Base index January 2016 = 100)

Source: Economic Commission for Latin America and the Caribbean (ECLAC).

The region continues to have access to international debt markets

AMÉRICA LATINA (13 PAÍSES): EMISIONES DE DEUDA EN LOS MERCADOS INTERNACIONALES, ACUMULADOS DE ENERO A MAYO DE 2018 vs ENERO A MAYO DE 2019

(En millones de dólares)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on figures from the Latin Finance Bonds Database.

5,000 10,000 15,000 20,000 Jan-May 2018 Jan-May 2019

Generalized declines in commodity prices are expected…

ANNUAL VARIATION IN INTERNATIONAL COMMODITY PRICES, 2016 TO 2019a (In percentages, based on average annual prices, weighted according to the average export basket of Latin America and the Caribbean)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on data from the World Bank; International Monetary Fund (IMF); Economist Intelligence Unit; Bloomberg; Energy Information Administration (EIA), "Short-Term Energy Outlook", June 2019; Capital Economics and Central Bank of Chile, Monetary Policy Report, June 2019 for the price of copper.

a The figures correspond to projections. b This category includes oil, natural gas and coal.

2016 2017 2018 2019a Agricultural products 4 1

• 3

Foods, tropical beverages and oilseeds 6

• 1
• 2
• 4

Foods 9

• 3

Tropical beverages 1

• 2
• 10
• 10

Oils and oilseeds 2

• 1

1

• 8

Forestry and agricultural raw materials

• 2

5 13 2 Minerals and metals

• 1

23 4

• 1

Energyb

• 16

23 26

• 10

Crude oil

• 16

23 29

• 10

All commodities

• 4

15 10

• 5

All commodities excluding energy products 2 11 3

• 2

In the face of subdued trade and a deterioration in the terms of trade, the current account deficit remains around 2.0% of GDP

LATIN AMERICA (18 COUNTRIES): BALANCE OF PAYMENTS CURRENT ACCOUNT BY COMPONENT, 2009 TO 2019a (Percentages of GDP)

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

a The figures for 2019 correspond to projections.

1.4 1.0 1.1 0.7 0.1

• 0.2
• 0.9

0.2 0.8 0.4 0.0

• 1.0
• 1.1
• 1.2
• 1.3
• 1.3
• 1.4
• 1.1
• 1.0
• 0.9
• 1.0
• 0.9
• 2.5
• 3.1
• 2.9
• 2.9
• 2.6
• 2.6
• 2.5
• 2.6
• 2.7
• 3.0
• 2.9

1.4 1.2 1.1 1.0 1.0 1.1 1.3 1.4 1.5 1.7 1.8

• 0.7
• 2.1
• 2.0
• 2.5
• 2.8
• 3.1
• 3.2
• 1.9
• 1.4
• 1.9
• 2.0
• 5
• 4
• 3
• 2
• 1

1 2 3 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Goods balance Services balance Income balance Current transfers balance Current account balance

POLICY SPACE

Fiscal consolidation continues to reduce deficits as income levels are insufficient to cover expenses

LATIN AMERICA (16 COUNTRIES): CENTRAL GOVERNMENT FISCAL INDICATORS, 2010-2019 (Percentages of GDP) LATIN AMERICA: GROSS PUBLIC DEBT OF THE CENTRAL GOVERNMENT, 2018 AND FIRST QUARTER OF 2019 (Percentages of GDP)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. Note: Simple averages. The figures for 2019 correspond to: projections derived from budgets or official estimates for the end of 2019.

• 2.0 -1.7 -2.1 -2.6 -2.9 -3.1 -3.2 -3.1 -2.9 -2.8

18.1 18.2 18.2 21.2 21.1 21.0 18.9 18.6 18.4

• 0.3 0.1 -0.3 -0.8 -1.0 -1.0 -1.0 -0.8 -0.4 -0.2
• 6
• 4
• 2

2 4 6 8 10 12 10 12 14 16 18 20 22 24 26 2010201120122013201420152016201720182019

Global balance (right axis) Total revenues (left axis) Total expenditure (left axis) Primary expenditure (left axis) Primary balance (right axis) 867753515049484543424039383936353326252217 89 79 53 494747474543423938 373434 26232118 10 20 30 40 50 60 70 80 90 Argentina Brazil Costa Rica Colombia Uruguay Honduras El Salvador SA Ecuador LA-18 CENTR Dominican Rep. Nicaragua Panama Bolivia Mexico Haiti Chile Guatemala Peru Paraguay 2018 Mar-19

In the Caribbean, although fiscal consolidation continues, more revenue is expected with possible increases in spending

THE CARIBBEAN (12 COUNTRIES): CENTRAL GOVERNMENT FISCAL INDICATORS, 2010-2019 (Percentages of GDP) THE CARIBBEAN: GROSS PUBLIC DEBT OF THE CENTRAL GOVERNMENT, 2018 AND FIRST QUARTER OF 2019 (Percentages of GDP)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. Note: Simple averages. Dominica is excluded. The figures for 2019 correspond to: projections derived from budgets or official estimates for the end of 2019.

125 103 91 81 72 67 66 65 64 62 60 60 46 43 125 94 89 84 64 60 42 20 40 60 80 100 120 140 160 Barbados Jamaica Belize Suriname CAR-13 St Vincent and the… Bahamas Dominica Antigua and Barbuda Saint Lucia Grenada Trinidad and Tobago Guyana Saint Kitts and Nevis 2018 Mar-19

• 3.0 -2.9 -2.6
• 3.4 -2.7 -2.5 -2.4 -2.6
• 1.2 -1.5

25.8 27.0 27.7 28.3 28.2 29.2 25.0 25.4 26.4 0.6 0.7 0.8

• 0.1 0.6

0.7 1.0 0.8 1.6 1.3

• 6
• 4
• 2

2 4 6 8 10 12 10 12 14 16 18 20 22 24 26 28 30 2010201120122013201420152016201720182019

Global balance (right axis) Total revenues (left axis) Total expenditure (left axis) Primary expenditure (left axis) Primary balance (right axis)

LATIN AMERICA AND THE CARIBBEAN: CENTRAL GOVERNMENT TOTAL REVENUES BY COMPONENT, 2017-2019 (Percentages of GDP)

Although revenue is expected to remain stable, the economic slowdown and lower commodity prices could have a negative impact on government revenue

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. Note: Simple averages. Dominica is excluded. The figures for 2019 correspond to: projections derived from budgets or official estimates for the end of 2019.

15.4 15.6 15.6 14.1 14.0 14.0 16.8 17.2 17.3 21.0 21.8 22.1 2.7 2.7 2.6 2.8 2.6 2.4 2.6 2.7 2.7 4.8 5.2 5.6 18.1 18.2 18.2 16.8 16.6 16.4 19.4 19.9 20.0 25.8 27.0 27.7 5 10 15 20 25 30 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 Latin America (17 countries) Central America, Dominican Rep. and Mexico South America (8 countries) The Caribbean (12 countries) Tax revenues Other revenues

6.6 6.7 4.0 2.3 Income tax Value-added tax Effective tax revenues Tax non-compliance

LATIN AMERICA: TAX NON-COMPLIANCE OF INCOME TAX AND VALUE-ADDED TAX, 2017 (Percentages of GDP)

Estimated tax evasion in 2017: 6.3% of GDP (US$ 335 billion)

Tax evasion and illicit financial flows represent a significant loss of revenues

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. Note: the estimates of tax evasion are based on national studies on tax non-compliance with income tax and value-added tax. The figures correspond to a weighted average based on GDP at current prices in dollars. The countries included are Argentina, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Mexico, Panama, Peru and Uruguay for the ISR; and, Argentina, Bolivia (Plurinational State of), Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Paraguay, Peru and Uruguay for VAT.

16

99 85 20 40 60 80 100 120 2000 2002 2004 2006 2008 2010 2012 2014 2016

LATIN AMERICA AND THE CARIBBEAN: ESTIMATES OF GROSS OUTFLOWS FROM GOODS TRADE MISINVOICING, 2000-2015 (Billions of US dollars)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on estimates from the methodology developed by ECLAC.

Capital expenditure is reaching historically low levels, while interest payments continue to rise

LATIN AMERICA (16 COUNTRIES): CENTRAL GOVERNMENT CAPITAL EXPENDITURES, 2000-2019 (Percentages of GDP) LATIN AMERICA (16 COUNTRIES): CENTRAL GOVERNMENT INTEREST PAYMENTS, 2000-2019 (Percentages of GDP)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on official figures. Note: Simple averages. The figures for 2019 correspond to: projections derived from budgets or official estimates for the end of 2019.

4.2 3.6 3.2 3.1 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Latin America (16 countries) Average 2000-2006

Average 2000-2006: 2.9% of GDP

1.7 2.3 2.5 2.7 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Average 2000-2006: 2.4% of GDP

Latin America (16 countries) Average 2000-2006

Monetary authorities continue to make use of the available space to stimulate aggregate demand…

LATIN AMERICA (SELECTED COUNTRIES): MONETARY POLICY RATE IN THE COUNTRIES THAT USE IT AS THE MAIN POLICY INSTRUMENT, JANUARY 2016 TO JUNE 2019 (In percentages)

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

Countries that maintained or reduced their rates Countries that increased their rates

2 4 6 8 10 12 14 16

Ene Mar May Jul Sep Nov Ene Mar May Jul Sep Nov Ene Mar May Jul Sep Nov Ene Mar May 2016 2017 2018 2019

Brazil Chile Costa Rica Colombia Guatemala Paraguay Peru 1 2 3 4 5 6 7 8 9

Ene Mar May Jul Sep Nov Ene Mar May Jul Sep Nov Ene Mar May Jul Sep Nov Ene Mar May 2016 2017 2018 2019

Honduras Mexico Dominican Rep.

Nonetheless, in the current context, more expansive monetary policies could increase exchange rate volatility and lead to greater depreciations…

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

a June 2019

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 Argentina Brazil Chile Colombia Costa Rica Guatemala Haiti Honduras Jamaica Mexico Nicaragua Paraguay Peru Dominican Rep. Trinidad y Tabago Uruguay Suriname Guyana 2016 2017 2018 2019 LATIN AMERICA AND THE CARIBBEAN (18 COUNTRIES): VOLATILITY OF THE NOMINAL EXCHANGE RATE, AVERAGE OF THE ABSOLUTE VALUE OF DAILY VARIATIONS, 2016 TO 2019a (Percentages)

Argentina Brazil Chile Colombia Paraguay Peru Uruguay Mexico Costa Rica I - 2017

4.3 0.6

• 1.0

1.4

• 3.4
• 3.7
• 0.8
• 12.6

3.1

II - 2017

10.7 0.2

• 7.1
• 1.8

0.5

• 0.6

0.5 7.9

• 0.6

I - 2018

55.3 17.2 6.3

• 1.9

1.8 1.2 9.7 1.3

• 0.4

II - 2018

33.2

• 0.9

6.0 10.9 4.8 2.5 2.6

• 1.6

6.9

I - 2019

18.7

• 0.4

0.4 1.7 5.5

• 0.6

8.2

• 0.4
• 2.8

Guatemala Haiti Honduras Nicaragua Dominican Rep. Jamaica Trinidad & Tobago Suriname Guyana I - 2017

• 2.5
• 6.0
• 0.1

2.0 2.3

• 0.4
• 0.1

1.1 0.0

II - 2017

0.1 2.0 0.6 2.4 2.0

• 2.8

0.0

• 0.5
• 1.1

I - 2018

2.1 3.1 1.9 2.3 2.4 4.5 2.2 1.1 2.0

II - 2018

2.9 18.2 1.3 3.2 2.0

• 0.9
• 2.0
• 0.2

0.3

I - 2019

• 0.2

19.2 1.0 2.1 0.9 5.4 0.0 0.7 0.0

SEMESTER VARIATIONS OF THE TYPE OF THE NOMINAL EXCHANGE RATE I SEMESTER 2017 - I SEMESTER OF 2019a (Percentages)

Negative sign (red): appreciations Positive sign (black): depreciations

Monetary policy has been less effective in stimulating higher credit growth in the face of lower growth expectations…

LATIN AMERICA AND THE CARIBBEAN (SELECTED COUNTRY GROUPS): DOMESTIC CREDIT TO THE PRIVATE SECTOR IN REAL TERMS, AVERAGE OF ANNUALIZED RATES, FIRST QUARTER OF 2013 TO SECOND QUARTER OF 2019 (Percentages)

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

a Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Saint Kitts and Nevis, Saint Vincente and the Grenadines, Saint Lucia, Suriname and Trinidad y Tobago. b Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Guatemala, Honduras, Mexico, Paraguay and Peru. c Bolivia (Plur. State of), Ecuador, El Salvador, Haiti, Nicaragua, Panama , Uruguay and Venezuela (Bol. Rep. of)

• 100
• 80
• 60
• 40
• 20

20 40 60

• 25
• 20
• 15
• 10
• 5

5 10 15

I 2016 II 2016 III 2016 IV 2016 I 2017 II 2017 III 2017 IV 2017 I 2018 II 2018 III 2018 IV 2018 I 2019 II 2019

The Caribbeanᵃ Countries with inflation targeting regimes ᵇ Countries with monetary aggregate management regimes (excl. Venezuela, Bol. Rep. of)ᶜ Venezuela (Bol. Rep. of) (right axis) Argentina (right axis)

Rising inflation induced by currency depreciations also reduce policy space to stimulate aggregate demand…

LATIN AMERICA AND THE CARIBBEAN: VARIATION RATES OF THE CONSUMER PRICE INDEX (CPI) IN 12 MONTHS, WEIGHTED AVERAGE, JANUARY 2015 TO MAY 2019 (In percentages)

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

2017 2018 May-18 May-19 Latin America and the Caribbean excl Venezuela (Bol. Rep. of) 5.7 7.0 5.0 8.1 South America excl Venezuela (Bol. Rep. of) 5.3 8.2 5.2 9.8 Central America and Mexico 6.4 4.7 4.7 4.8 The Caribbean 3.7 2.0 2.5 3.1

2 4 6 8 10 12 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 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Latin America and the Caribbean excl Venezuela (Bol. Rep. of) South America excl Venezuela (Bol. Rep. of) Central America and Mexico The Caribbean

In addition to less policy space, productivity has exhibited a downward trend in the last years

LATIN AMERICA: LABOUR PRODUCTIVITY, 2000 TO 2018

(Percentages)

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

• 4.0
• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

The export structure remains concentrated in raw materials

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of COMTRADE. Note: Includes 33 countries in the region. For 16 of them, mirror statistics were used to achieve better data coverage.

LATIN AMERICA: COMPOSITION OF EXPORTS ACCORDING TO TECHNOLOGICAL INTENSITY, 2018 (Percentages)

56 20 13 12 33 23 27 27 8 17 5 12 18 9 8 14 34 32 49 31 2 8 10 22 11

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

South America The Caribbean Central America Mexico Latin America and the Caribbean Primary goods Natural resources based manufacture Low-technology manufacture Medium-technology manufacture High-technology manufacture

ACTIVITY AND PROJECTIONS

• 0.1

1.6

• 0.7
• 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 III IV I 2014 2015 2016 2017 2018 2019ᵃ Latin America Mexico and Central America South America

Continued slowdown with negative rates for the region and South America in the first quarter of 2019

LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH RATE, 2014 TO 2019 (In percentages, based on constant dollars of 2010)

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

The contribution of private consumption and exports to economic growth continues to be positive but is trending downwards

LATIN AMERICA: CONTRIBUTION OF PRIVATE CONSUMPTION, GENERAL GOVERNMENT CONSUMPTION, FIXED INVESTMENT AND EXPORTS TO GDP GROWTH, 2015 TO 2019 (Percentages)

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

• 2.0
• 1.5
• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0 I II III IV I II III IV I II III IV I II III IV I 2015 2016 2017 2018 2019 Gross fixed capital formation Exports of goods and services

• 2.0
• 1.5
• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0 2.5 I II III IV I II III IV I II III IV I II III IV I 2015 2016 2017 2018 2019 Private consumption General government consumption

Unemployment rates remain at high levels accompanied by a deterioration in working conditions

At the beginning of 2019 there was a deterioration of the quality of employment:

• Self-employment is

expanding more than salaried labor

• Increase in informal

labour

• Increase in hourly

underemployment

LATIN AMERICA AND THE CARIBBEAN: URBAN UNEMPLOYED RATE AND NUMBER, 2013 TO 2019 (Percentages)

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

a Estimate.

16.0 15.8 17.0 21.2 22.7 23.1 23.4 7.1 6.9 7.3 8.9 9.3 9.3 9.3 5 10 15 20 25 5 6 7 8 9 10 2013 2014 2015 2016 2017 2018 2019ᵃ Urban unemployed (in millions) Open urban unemployment rate Urban unemployed (right axis) Open urban unemployment rate (left axis)

• 5.0
• 1.8

0.1 0.2 0.2 0.3 0.5 0.5 0.5 0.8 0.9 1.0 1.4 1.6 1.6 1.9 2.0 2.1 2.1 2.1 2.2 2.3 2.5 2.5 2.8 2.9 2.9 3.1 3.1 3.2 3.3 3.5 4.0 4.6 4.9 5.5 5.9 9.9 Venezuela (Bol. Rep. of) Nicaragua Argentina Barbados SOUTH AMERICA Ecuador Uruguay Cuba LATIN AMERICA LATIN AMERICA AND THE CARIBBEAN Brazil Haiti Mexico CENTRAL AMERICA AND MEXICO Trinidad y Tabago Paraguay Jamaica Saint Lucia THE CARIBBEAN Belize Suriname The Bahamas El Salvador Saint Vincent and the Grenadines Costa Rica Chile CENTRAL AMERICA Guatemala Saint Kitts and Nevis Colombia Peru Granada Honduras Bolivia (Plur. State of) Guyana Panama Dominican Rep. Antigua and Barbuda Dominica

GDP growth projections for 2019

(Percentages, constant 2010 dollars)

Source: Economic Commission for Latin America and the Caribbean (ECLAC).

• 23.0

Economic growth in Central America is closely linked to remittances and terms of trade

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

a The figures for 2019 correspond to the period between January and April for Colombia, El Salvador, Guatemala, Honduras and the Dominican Republic; to the period between

January and March for Mexico, Nicaragua, Paraguay and Peru and to the period between January and February in the case of Bolivia (Plurinational State of) and Jamaica. For Costa Rica and Ecuador, there were no data available for 2019 at the time of closing this document.

LATIN AMERICA (COUNTRIES AND SELECTED COUNTRY GROUPS): VARIATION RATE OF TERMS OF TRADE, 2015 TO 2019a (Percentages) LATIN AMERICA AND THE CARIBBEAN (SELECTED COUNTRIES): WEIGHT OF INCOME FROM REMITTANCES IN THE ECONOMY, 2018 (Percentages of GDP)

20.7 20.4 15.2 11.8 11.4 8.0 3.6 2.8 2.7 1.9 1.4 1.4 0.8 El Salvador Honduras Jamaica Guatemala Nicaragua Dominican Rep. Bolivia (Plur. State of) Ecuador Mexico Colombia Peru Paraguay Costa Rica

• 15
• 10
• 5

5 10 15

Latin America Brazil Exporters of minerals and metalsᵇ Exporters of agro-industrial productsᶜ Mexico Central America, Dominican

• Rep. and Haiti

Exporters of hydrocarbonsᵈ The Caribbeanᵉ

2015 2016 2017 2018 2019

• 29,2

Four instruments to expand the fiscal space

✓ Reducing tax evasion and illicit financial flows ✓ Re-evaluate tax expenditure to align them with productive investment ✓ Promote the adoption of taxes on the digital economy, environmental and related to public health ✓ Stimulatory countercyclical policies

Four public spending and investment policies

✓ Protect double inclusion (labour and social) from social spending ✓ Redirect public investment towards the adaptation and use of innovative technologies with natural resources ✓ Promote public-private agreements for infrastructure and renewable energy ✓ Re-design tax incentives for industrial policies

Multilateral regional space to reduce fiscal asymmetries

✓ Adopt regional and global agreements to reduce tax evasion, avoidance and illicit flows. ✓ Reduce harmful tax competition ✓ Revision and convergence

• f the use of tax

incentives for investment ✓ Reduce global asymmetries and deepen the dialogue with transnational corporations

FISCAL POLICIES

Promote economic growth without compromising exchange and price stability ✓ Stimulate aggregate demand according to available space. ✓ Use monetary policy to promote activities of greater productivity. ✓ Strengthen the ability of central banks to address the effects of foreign exchange volatility: ✓ Instruments such as credit lines and swaps between central banks ✓ Strengthening the regional financial architecture. ✓ Adapt regulation to financial flows to higher volatility environments

MONETARY POLICIES

✓ Orient investment towards knowledge-intensive sectors and more dynamic sectors that drive increased productivity ✓ Investment stimulus policies must incorporate innovation, learning and quality jobs ✓ Articulate investments towards sectors with greater environmental sustainability: renewable energy, electromobility, green infrastructure and sectors linked to the circular economy

PRO INVESTMENT AND PRODUCTIVITY POLICIES

Beyond the financial situation: The second part of the Economic Survey is dedicated to analyzing the structural changes of the international financial system from the perspective of the region

Stylized facts of the international financial context post sub-prime crisis

▪ Short-term and structural changes in instruments and agents are evident ▪ The bond market has gained relative importance with respect to the banking system. It generates more than half of the global liquidity ▪ Levels of concentration, interconnectivity and procyclicality have increased ▪ The level of global indebtedness registers record levels (320% of GDP) in a context of low growth

Strategic challenges

▪ Expand and standardize the spectrum of vulnerability indicators, i.e. complementing the indicators of net external financial flows with gross flows ▪ Distinguish between intra-company loans and other foreign direct investment (FDI) flows ▪ Move towards a broader and more homogeneous macroprudential regulation that covers both the formal banking sector and all financial agents - including the shadow banking sector - as well as the various instruments