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Stuck in the slow lane

Latin America’s economy looks set to remain stuck in the slow lane over the next couple of years. The drivers of strong growth over the past decade – including rapid credit growth and strong global demand for the region’s commodities – are weakening. At the same time, policymakers have struggled to push through the new reforms that are needed to raise productivity and shift the region onto a more sustainable growth path. The net result is likely to be that the region continues to grow at rates of just 2-3% a year. What’s more, with economic weakness unlikely to be accompanied by a drop in inflation, there is little room for central banks to loosen policy in order to support growth. Indeed, in most countries, we expect interest rates to edge up (albeit gradually) over 2014-15. At a country level, we remain most upbeat on the prospects for Mexico. In contrast, we expect Brazil to continue to struggle, while growing strains in the balance of payments look set to push both Argentina and Venezuela into recession this year

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