The economic outlook for Latin America remains pretty gloomy. Weaker growth in China and lower global commodity prices will depress export revenues and, as incomes fall, cause domestic demand to soften further. Unemployment will rise. At the same time, there is little that policymakers can do to cushion the downturn. Above-target inflation will require monetary policy to tighten in most places, while widening budget deficits will require most governments to enact a fiscal squeeze. All told, we expect aggregate economic growth in the region to stagnate this year, before picking up slightly to around 1.5% next year.
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