After two years of falling output, Latin America’s economy finally looks set to return to growth next year. Brazil and Argentina should exit recessions, while the downturns in Colombia and Chile are likely to bottom out. Investment should start to recover in most countries as business confidence returns. At the same time, weaker currencies will support non-commodity exports. However, the region’s recovery will be slow going. On the external front, economic growth in China – the largest export market for most countries – looks set to slow. Global commodity prices should grind higher but they will remain at low levels. On the domestic front, fiscal policy will tighten further in most places as governments continue the process of balance sheet repair. The good news is that falling inflation will give most central banks room to cut interest rates. The main exception is Mexico. While we don’t expect the election of Donald Trump to trigger a recession in Mexico, the drop in the peso will push up inflation and trigger further monetary tightening. All told, having contracted by 1.0% this year, we expect regional GDP to grow by 1.3% next year and 2.3% in 2018.
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