Question

What are the major factors which have hindered
the growth of industries in South America?​

Answer 1

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THESE THREE FACTORS ARE HOLDING BACK GROWTH IN LATIN AMERICA

By Erik Norland Feb 27, 2015

Latin American currencies have weakened a great deal since early 2014 in large part due to slow growth in the region. These trends are likely to continue through 2015, for three primary reasons.

Lower commodity prices: US Dollar (USD) prices for agricultural, energy and metals exports have fallen across the board and will reduce export revenue to varying degrees in the region.

Large current account deficits: In many Latin American nations, trade deficits are larger than historical norms and may require weaker domestic demand (less imports) in order to compensate for sluggish (or negative) growth in export revenue.

Rising inflation: Most Latin American economies have experienced an increase in inflation due to the lag impact of weaker currencies. This may hinder the ability and willingness of the region’s central banks to boost demand by easing monetary policy and, in some cases, may lead to more restrictive monetary conditions.

While our overall outlook is for continued below-potential growth in Latin America in 2015, we emphasize that the region is highly diverse, and growth rates and inflation will differ greatly from one country to another. Among the region’s varied economies, we expect that Brazil, Chile, Mexico, and Peru will be relative outperformers, while Colombia will slow substantially, after many years of impressive growth. Finally, we expect difficult times for Argentina and especially so for Venezuela, where we anticipate a deep recession with the possibility of triple-digit inflation.

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