Preliminary Overview of the Economies. of Latin America and the Caribbean

Transcription

1 2013 Preliminry Overview of the Economies of Ltin Americ nd the Cribben

2 Preliminry Overview of the Economies of Ltin Americ nd the Cribben

3 Alici Bárcen Executive Secretry Antonio Prdo Deputy Executive Secretry Jun Alberto Fuentes Chief Economic Development Division Ricrdo Pérez Chief Publictions nd Web Services Division The Preliminry Overview of the Economies of Ltin Americ nd the Cribben is n nnul publiction prepred by the Economic Development Division of the Economic Commission for Ltin Americ nd the Cribben (ECLAC). This 2013 edition ws prepred under the supervision of Jun Alberto Fuentes, Chief of the Division, while Jürgen Weller, Senior Officer for Economic Affirs in the sme Division, ws responsible for the overll coordintion. In the preprtion of this edition, the Economic Development Division ws ssisted by the Sttistics Division, the ECLAC subregionl hedqurters in Mexico City nd Port of Spin, nd the Commission s country offices in Bogot, Brsili, Buenos Aires, Montevideo nd Wshington, D.C. The regionl nlyses were prepred by Jun Alberto Fuentes with input from the following experts: Luis Felipe Jiménez, Alexnder Loschky, Cmeron Dneshvr nd Guillermo Fuentes (externl sector), Ricrdo Mrtner, Michel Hnni nd Ivonne González (fiscl policy), Rmón Pined, Rodrigo Cárcmo, Yusuke Tteno nd Alejndr Acevedo (monetry, exchnge-rte nd mcroprudentil policies), Sndr Mnuelito nd Seung-jin Bek (ctivity nd prices) nd Jürgen Weller (employment nd wges). The economic projections were produced by Sndr Mnuelito, Alexnder Loschky nd Cludio Arven with input from the ntionl offices nd subregionl hedqurters. Jzmín Chiu, Ginnin López nd Crolin Serpell were responsible for the processing nd presenttion of the sttisticl dt nd grphicl presenttions. The country notes re bsed on studies conducted by the following experts: Olg Lucí Acost, Dillon Alleyne, Rodrigo Cárcmo, Cmeron Dneshvr, Mri Kristin Eisele, Guillermo Fuentes, Stefnie Grry, Rndolph Gilbert, Michel Hnni, Michel Hendrickson, Jun Pblo Jiménez, Luis Felipe Jiménez, Osvldo Kcef, Alexnder Loschky, Sndr Mnuelito, Rodolfo Minzer, Crlos Mussi, Mrí Odriozol, Rmón Pdill, Mchel Pntin, Rent Prdo, Willrd Phillips, Indir Romero, Sebstián Vldecntos, Dniel Veg, Frncisco Villrrel, Kohei Yoshid nd Willy Zpt. The country notes re vilble on line t The cut-off dte for the informtion presented in this publiction ws 29 November Note: The following symbols hve been used in the tbles shown in the Preliminry Overview: - Three dots ( ) indicte tht dt re not vilble or re not seprtely reported. - A dsh (-) indictes tht the mount is nil or negligible. - A full stop (.) is used to indicte decimls. - The word dollrs refers to United Sttes dollrs unless otherwise specified. United Ntions publiction ISBN: ISSN printed version: E-ISBN: LC/G.2581-P Sles No.: E.14.II.G.2 Copyright United Ntions, Februry All rights reserved Printed in Sntigo, Chile Applictions for the right to reproduce this work, either in whole or in prt, should be sent to the Secretry of the Publictions Bord, United Ntions Hedqurters, New York, N.Y , United Sttes. Member Sttes nd their governmentl institutions my reproduce this work without prior uthoriztion, but re requested to mention the source nd inform the United Ntions of such reproduction.

4 Contents Executive summry...7 Chpter I The interntionl context...13 Chpter II Economic ctivity...15 Growth remined low in Ltin Americ nd the Cribben in As in previous yers, domestic demnd boosted growth...16 Commerce, construction nd finncil nd business services were more buoynt...17 Chpter III Employment nd wges...19 Job cretion slowed...19 Youth unemployment hs risen...21 With employment growth slowing, so did growth in the wge bill, which cooled privte consumption...22 Chpter IV The externl sector...25 Deteriortion of the blnce-of-pyments current ccount...25 Slight deteriortion in the terms of trde...26 The current ccount deteriorted owing to nrrower goods trde surplus nd slightly wider deficit on the services blnce...27 The deficit on the income blnce widened while the current trnsfers surplus shrnk slightly...29 Interntionl finncil voltility prompted chnge in the composition of the finncil ccount in Ltin Americ nd the Cribben in The deteriortion in the externl sector led to lower growth in gross ntionl disposble income, mking investment finncing incresingly relint on externl svings...34 Chpter V Policies...37 Countries hve ltered their fiscl trgets in response to economic cooling, with shift towrds slightly countercyclicl policies...37 Spending continued to rise in most of the countries of the region...41 Fiscl revenues in the region benefited from recent tx reforms nd rising income from hydrocrbons Monetry policy hs been directed towrds sustining domestic demnd nd offsetting interntionl finncil voltility...44 Differences in monetry policy reflected in different infltion trjectories...46 Exchnge-rte voltility shrpened...48 The build-up of interntionl reserves cme to hlt...50 A rnge of mcroprudentil policies were dopted in the region...50 Chpter VI Outlook...53 Sttisticl nnex...57 ECLAC Publictions...89 Tbles Tble 1 Tble III.1 Tble III.2 Totl gross domestic product, vrition rtes...8 Ltin Americ nd the Cribben (selected countries): simple employment-output elsticity nd wge employment-output elsticity, 2012 nd Ltin Americ nd the Cribben (selected countries): vrition in the youth nd dult prticiption, employment nd unemployment rtes, verge for the first to third qurters of 2013 compred with the sme period of the previous yer...21 Contents 3

5 Economic Commission for Ltin Americ nd the Cribben (ECLAC) Tble III.3 New lbour policies, Tble IV.1 Ltin Americ (17 countries): components of the blnce of pyments...31 Tble IV.2 Ltin Americ (17 countries): components of the finncil ccount...32 Tble IV.3 Ltin Americ nd the Cribben: country risk indictors...33 Tble V.1 Ltin Americ nd the Cribben: centrl government fiscl indictors, fiscl blnce 2013 nd estimted chnges in revenues nd expenditure, Tble V.2 Ltin Americ nd the Cribben: public finnce mesures nd reforms, Tble V.3 Ltin Americ nd the Cribben: 12-month vrition in the consumer price index nd food price index, December 2012-October Tble V.4 Ltin Americ nd the Cribben: monetry, exchnge-rte nd mcroprudentil mesures dopted in Tble A-1 Ltin Americ nd the Cribben: min economic indictors...57 Tble A-2 Ltin Americ nd the Cribben: gross domestic product...58 Tble A-3 Ltin Americ nd the Cribben: per cpit gross domestic product...59 Tble A-4 Ltin Americ nd the Cribben: gross fixed cpitl formtion...60 Tble A-5 Ltin Americ nd the Cribben: blnce of pyments...61 Tble A-6 Ltin Americ nd the Cribben: interntionl trde of goods...64 Tble A-7 Ltin Americ: terms of trde for goods f.o.b./f.o.b...65 Tble A-8 Ltin Americ nd the Cribben (selected countries): remittnces from emigrnt workers...65 Tble A-9 Ltin Americ nd the Cribben: net resource trnsfer...66 Tble A-10 Ltin Americ nd the Cribben: net foreign direct investment...67 Tble A-11 Ltin Americ nd the Cribben: gross externl debt...68 Tble A-12 Ltin Americ nd the Cribben: sovereign spreds on EMBI+ nd EMBI globl...69 Tble A-13 Ltin Americ nd the Cribben: risk premi on five-yer credit defult swps...69 Tble A-14 Ltin Americ nd the Cribben: interntionl bond issues...70 Tble A-15 Ltin Americ nd the Cribben: stock exchnge indices...70 Tble A-16 Ltin Americ nd the Cribben: gross interntionl reserves...71 Tble A-17 Ltin Americ nd the Cribben: rel effective exchnge rtes...72 Tble A-18 Ltin Americ nd the Cribben: prticiption rte...73 Tble A-19 Ltin Americ nd the Cribben: open urbn unemployment...74 Tble A-20 Ltin Americ nd the Cribben: employment rte...75 Tble A-21 Ltin Americ: rel verge wges...76 Tble A-22 Ltin Americ nd the Cribben: monetry indictors...77 Tble A-23 Ltin Americ nd the Cribben: domestic credit...79 Tble A-24 Ltin Americ nd the Cribben: monetry policy rtes...80 Tble A-25 Ltin Americ nd the Cribben: representtive lending rtes...81 Tble A-26 Ltin Americ nd the Cribben: consumer prices...82 Tble A-27 Ltin Americ nd the Cribben: centrl government primry nd overll blnces...83 Tble A-28 Ltin Americ nd the Cribben: centrl government tx revenues composition...84 Tble A-29 Ltin Americ nd the Cribben: centrl government expenditure composition...85 Tble A-30 Ltin Americ nd the Cribben: non-finncil public sector gross public debt...86 Tble A-31 Ltin Americ nd the Cribben: centrl government gross public debt...87 Figures Figure I.1 Rel GDP growth by region nd selected country groupings, Figure II.1 Ltin Americ nd the Cribben: GDP growth projections, Figure II.2 Ltin Americ nd the Cribben: qurterly gross domestic product, vrition in reltion to the sme qurter of the previous yer, 2010 to third qurter Figure II.3 Ltin Americ: GDP vrition nd contribution to growth by the components of domestic demnd nd net exports, Figure III.1 Ltin Americ nd the Cribben: economic growth nd employment rte, Contents 4

6 Preliminry Overview of the Economies of Ltin Americ nd the Cribben 2013 Figure III.2 Ltin Americ nd the Cribben (10 countries): yer-on-yer vrition in employment nd unemployment rtes, first-qurter 2008 to third-qurter of Figure III.3 Ltin Americ nd the Cribben (15 countries): yer-on-yer vrition in the prticiption, employment nd unemployment rtes by sex, verge for the first to third qurters of Figure III.4 Ltin Americ (selected countries): yer-on-yer vrition in forml employment, first qurter 2012 to third qurter Figure IV.1 Ltin Americ: current ccount structure, Figure IV.2 Ltin Americ: price indices for export commodities nd mnufctured goods, Figure IV.3 Ltin Americ: estimted vrition in the terms of trde, Figure IV.4 Yer-on-yer vrition in the imports of the Europen Union, United Sttes, Chin nd the BRICS countries (excluding Chin), first-qurter 2011 to third-qurter Figure IV.5 Ltin Americ: estimted vrition in export vlues, by volume nd price, Figure IV.6 Ltin Americ: estimted vrition in import vlues, by volume nd price, Figure IV.7 Ltin Americ nd the Cribben: yer-on-yer vrition in interntionl tourist rrivls, 2009-Jnury-August Figure IV.8 Ltin Americ nd the Cribben (selected countries): vrition in income from emigrnt remittnces, Figure IV.9 Ltin Americ: externl bond issues nd country risk, Figure IV.10 Ltin Americ: vrition in GDP nd gross ntionl disposble income, Figure IV.11 Ltin Americ: contribution of terms-of-trde gins, income pyments brod nd net current trnsfers to the spred in the vrition between GDP nd gross ntionl disposble income, Figure IV.12 Ltin Americ: investment finncing, Figure V.1 Ltin Americ (19 countries): centrl government fiscl indictors, Figure V.2 Ltin Americ nd the Cribben: centrl government overll fiscl blnce nd public debt, Figure V.3 Ltin Americ nd the Cribben: centrl government spending, Figure V.4 Ltin Americ nd the Cribben: centrl government cpitl expenditure, Figure V.5 Ltin Americ nd the Cribben: totl fiscl income nd tx income of the centrl government, by subregion nd country grouping, Figure V.6 Monetry policy rtes in countries with infltion-trgeting schemes, Figure V.7 Ltin Americ nd the Cribben: nnulized growth in the monetry ggregte M1, Figure V.8 Ltin Americ nd the Cribben: nnulized growth in domestic lending to the privte sector, October 2010-September Figure V.9 Stock mrket vrition, Jnury 2007-September Figure V.10 Ltin Americ nd the Cribben: 12-month infltion, simple verge Jnury 2007 to October Figure V.11 Ltin Americ: vrition in consumer price index, the food price index nd core infltion, Jnury 2007 to October Figure V.12 Mexico, Peru nd Uruguy: nominl exchnge rte ginst the United Sttes dollr, Figure V.13 Brzil, Chile nd Colombi: nominl exchnge rte ginst the United Sttes dollr, Jnury 2011-November Figure V.14 Gross interntionl reserves s proportion of GDP...50 Figure VI.1 Ltin Americ nd the Cribben: GDP growth projections, Contents 5

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8 Executive summry The globl economy showed lcklustre growth nd finncil voltility in 2013 Globl economic growth slipped from 2.4% in 2012 to 2.1% in 2013, s signs of recovery coincided with high degree of finncil voltility in the second hlf of the yer. The eurozone economy gin contrcted in 2013, by 0.6% in nnulized terms, s the ongoing finncil crisis nd the fiscl usterity progrmmes implemented to contin it hve spped domestic demnd nd wekened imports from the rest of the world. The United Sttes posted modest growth in 2013, prtly owing to the difficulty in reching fiscl policy greement, which triggered utomtic spending cuts. The bsence of lsting budget greements nd nnouncements of shifts in United Sttes monetry policy lso contributed to turbulence. In My nd June 2013, interntionl finncil voltility spiked fter the Federl Reserve nnounced tht it might tper off its sset purchse progrmme, depending on the country s economic performnce nd especilly its unemployment rte. Finncil gents ttempted to prepre their portfolios for this shift, pushing up yields on United Sttes finncil ssets nd strengthening the dollr. The risk premiums of emerging economies, especilly those of Ltin Americ, climbed significntly from My. In September, with United Sttes unemployment rtes still topping the trget level of 6.5%, the Federl Reserve mde new nnouncement to the effect tht monetry policy chnges were no longer imminent. As result, stock indexes jumped, United Sttes bond yields fell, nd severl Ltin Americn currencies strengthened, to n extent reversing the effects of the initil nnouncement. In 2013 the region mintined modest growth, driven by domestic demnd The Ltin Americn nd Cribben region recorded GDP growth of 2.6% in 2013, down from 3.1% in 2012, testifying to the continution of the economic slowdown pprent in the region since The countries growth rtes differed significntly, however. Sluggish growth in the region in 2013 prtly reflects the lcklustre performnce of its two lrgest economies: Brzil (2.4%) nd Mexico (1.3%). 1 Prguy, Pnm, Peru nd the Plurintionl Stte of Bolivi grew by more thn 5%, while Argentin, Chile, Colombi, Guyn, Nicrgu nd Uruguy posted growth of between 4% nd 5%. Of the subregions, South Americ returned growth of 3.1%, slightly behind the 3.7% for the group formed by Centrl Americ plus the Dominicn Republic nd Hiti. Growth remined sluggish (1.3%) in the English- nd Dutch-speking Cribben. Regionl growth ws driven primrily by robust domestic demnd, in prticulr consumption, which dded 2.8 percentge points to GDP growth, while investment contributed 0.9 percentge points. Net exports gin contributed negtively to GDP growth (-0.8 percentge points), but less so thn in previous yers. Unemployment fell once gin in the region, edging down from 6.4% in 2012 to 6.3% in 2013; however this dip ws due less to job cretion thn to reduction in the lbour supply, with lower overll prticiption rte. In prctice, wekening job cretion, ssocited with slower growth in the most consumption-dependent nd lbourintensive non-trdble sectors (commerce, construction nd community, socil nd personl services), coincided with decline in job-seeking within households owing to limited job opportunities nd fvourble lbour context for those lredy in work fter severl yers of rising employment. Slckening job cretion in 2013 cused youth 1 These two economies together ccount for bout 63% of the totl GDP of Ltin Americ nd the Cribben. Executive summry 7

9 Economic Commission for Ltin Americ nd the Cribben (ECLAC) unemployment to rise cross the region, which my be ttributed to the fct tht new entrnts to the lbour mrket, mny of whom re young people, re the first to be ffected when job cretion cools off. Tble 1 Totl gross domestic product, vrition rtes (On the bsis of constnt 2005 dollrs) Country b Argentin Bolivi (Plurintionl Stte of) Brzil Chile Colombi Cost Ric Cub Dominicn Republic Ecudor El Slvdor Guteml Hiti Hondurs Mexico Nicrgu Pnm Prguy Peru Uruguy Venezuel (Bolivrin Republic of) Subtotl for Centrl Americ, Hiti nd Dominicn Republic Subtotl for Ltin Americ Antigu nd Brbud Bhms Brbdos Belize Dominic Grend Guyn Jmic Sint Kitts nd Nevis Sint Vincent nd the Grendines Sint Luci Surinme Trinidd nd Tobgo Subtotl for the Cribben Ltin Americ nd the Cribben Estimtes. b Projections. The externl sector deteriorted In 2013 there ws cler deteriortion in the externl sector, with the blnce-of-pyments current ccount deficit widening from 1.8% of GDP in 2012 to 2.5% in 2013 s goods imports grew more rpidly thn exports. This trend reflected generl downturn in the terms of trde cross the region, modertely offset by incresed export volumes. Executive summry In ddition to the nrrowing of the region s goods trde surplus, the deficit on the services blnce widened slightly owing to fll-off in tourism nd higher trnsport costs. The deficit on the income blnce lso crept up, on the bck of incresed profit remittnces nd dividend pyments, primrily from Brzil nd Mexico. The current trnsfers surplus shrnk somewht, showing the impct of downtrend in remittnces to Mexico, even though remittnces incresed in severl Centrl Americn countries. 8

10 Preliminry Overview of the Economies of Ltin Americ nd the Cribben 2013 The deteriortion of the externl sector hd number of consequences. First, s noted bove, rel net exports continued to contribute negtively to GDP growth. Second, sluggish consumption growth reflected the fct tht gross ntionl disposble income rose by less thn GDP, owing prtly to the downturn in the terms of trde which minly ffected the countries of South Americ nd prtly to the decline in remittnces flowing into Mexico. Third, the deteriortion in externl conditions, with widening wider current ccount deficit nd shrinking disposble income, lso pushed up the contribution of externl svings to finncing investment in the region, continuing trend tht commenced in 2010 fter severl yers ( ) in which investment hd been funded by ntionl svings. The fct tht the gross investment to GDP rtio (mesured in current dollrs) remined constnt nd low (21.4%), with especilly poor rtes in some Centrl Americn countries, nd with n incresing proportion of finncing coming from externl svings (whose finncil costs will likely increse s monetry stimuli re withdrwn), presents chllenges for the sustinbility of future growth. Interntionl finncil voltility led to shift in the composition of the blnce-of-pyments finncil ccount in Ltin Americ nd the Cribben in 2013, with three min components. First, net foreign direct investment remined high. Second, still-low interntionl interest rtes lbeit with expecttions of possible increses in the future continued to fvour net portfolio investment in the region, especilly in privte corporte, sovereign nd qusi-sovereign foreign bonds, including in growing number of Centrl Americn nd Cribben countries. Third, contrsting with the trend in portfolio investment, net outflows of the more voltile components of externl finncing incresed s globl yields rose on United Sttes finncil ssets in response to nnouncements of n impending chnge in United Sttes monetry policy. The net result of these three effects ws tht short-term cpitl outflows were offset by bond issues nd inflows of foreign direct investment, nd the blnce of the finncil ccount for the region s whole remined virtully constnt. The combintion of finncil ccount surplus nd wider current ccount deficit brought the ccumultion of interntionl reserves to stndstill in 2013, ending 10-yer uptrend for the region s whole, lthough there were divergences between countries. Mcroeconomic policies were directed towrds sustining domestic demnd nd ddressing interntionl finncil voltility Slckening growth nd the deteriortion of the externl sector led to loosening of fiscl trgets in the region, mde possible, in most countries, by highly fvourble ccess to finncing t historiclly low rtes. Public spending rose modestly s proportion of GDP in most of the countries, nd included higher cpitl spending, with the exceptions of Brzil nd Mexico. Worsening fiscl ccounts in severl hydrocrbon-exporting economies were lrgely due to higher public spending, while lower commodity prices eroded fiscl income in the countries tht export minerls nd metls. Serious fiscl imblnces remined in certin Centrl nd South Americn countries, while in severl Cribben countries these imblnces coincided with limited borrowing room, forcing them to embrk upon difficult fiscl djustment processes. The overll deficit for Ltin Americ stood t 2.4% of GDP, nd the primry deficit, djusted for interest pyments, t 0.6% of GDP. This ws the poorest performnce since The Cribben posted nrrower overll deficit thn in 2012, t 3.0% of GDP. In the second hlf of 2013, the verge infltion rte of the Ltin Americn nd Cribben countries ws slightly up on the preceding months, so tht men infltion trended upwrds over the yer. The Bolivrin Republic of Venezuel nd Argentin posted the region s highest infltion rtes, followed by Jmic, the Plurintionl Stte of Bolivi nd Uruguy. However, infltion rtes of under 5% previled in most of the region s economies. Amid prospects for lower infltion, slower economic growth nd finncil instbility, mny countries directed their monetry policy towrds sustining domestic demnd nd prepring for interntionl finncil voltility by lowering policy interest rtes in the cse of economies with infltion-trgeting schemes, with the exception of Brzil or seeking stble growth in monetry ggregtes. Finncil instbility nd n esing of upwrd pressure on currencies slowed the ccumultion of interntionl reserves, nd some countries intervened directly in the currency mrkets or implemented mcroprudentil mesures to stve off greter exchnge-rte fluctutions. Executive summry 9

11 Economic Commission for Ltin Americ nd the Cribben (ECLAC) Outlook for 2014 Stronger externl demnd nd n uptick in consumption will help to boost growth in Ltin Americ nd the Cribben in 2014 Recent developments in the United Sttes, Jpnese nd Europen economies, combined with Chinese economy tht performed slightly better thn initilly expected, hve brightened expecttions somewht for Forecsts plce the globl economy s growth rte t 2.9%, with growth picking up in both developed nd developing countries. GDP growth in Ltin Americ nd the Cribben is expected to rlly somewht nd the region could post rte of round 3.2%, on the ssumption of improving externl conditions driving export growth. An upturn in the regionl growth rte will depend, in prt, on continued recovery in Mexico nd better growth performnce in Brzil, both of whose growth rtes lgged the regionl verge in Rising privte consumption will continue to contribute to regionl growth in 2014, lthough less vigorously thn in previous yers. Disposble income will grow t below-gdp rtes owing to scnt gins in the terms of trde or in remittnces. Other fctors in the loss of momentum in privte consumption re the slowdown in lending lredy pprent in the region in 2013, the lcklustre expnsion of the wge bill s the region s growth becomes less lbourintensive, nd more restrined rel wge growth. For resons which re outlined below, fiscl policy in the region s whole is unlikely to boost consumption significntly. In this context, higher growth rtes will be lrgely dependent on opportunities for boosting exports nd investment in the region. Export growth is likely, but the externl sector will remin somewht vulnerble The prtil upturn in the globl economy could crete some spce for boosting regionl export volumes, exports of services (prticulrly tourism) nd remittnce receipts. Nevertheless, goods nd services imports could expnd fster thn exports s buoynt consumption nd expecttions of rising investment buoy domestic demnd in the region. The risk here is tht the region s blnce-of-pyments current ccount will continue to deteriorte, s hs been the cse since 2010, but now the deficit will likely be costlier to finnce, given the prospect tht the monetry stimulus mesures implemented by the United Sttes nd other countries will be grdully withdrwn. Amid expecttions tht globl demnd for commodities will slcken, net foreign direct investment flows could drop slightly, nd if, s expected, the United Sttes Federl Reserve tpers off its sset purchses in 2014, the resulting contrction in interntionl liquidity could led to smller inflows of portfolio investment nd new externl finncil outflows, in prticulr more voltile components such s short-term deposits. In short, net inflows of externl finncil resources will likely be smller in 2014 in the region overll. The risks nd constrints ccompnying this scenrio could ffect countries to vrying degrees, since economies with significnt reserves, low externl debt nd brod ccess to interntionl cpitl mrkets will fre better thn those without those dvntges. Fiscl policy chllenges will grow while monetry, exchnge-rte nd mcroprudentil policies will continue long similr lines in most countries The interntionl liquidity squeeze expected in 2014 will likely tighten borrowing conditions nd curb public spending growth, possibly depending on economic growth mrking the beginning of slightly more difficult period of fiscl djustment. This sitution, mid mounting demnds from citizens nd shrinking tx bses, could led the uthorities to look t tx reforms to generte more revenue, especilly s new governments tke office in severl countries. Monetry nd mcroprudentil policy in the region is expected to be loosened during the first few months of 2014, in order to stimulte economic growth in light of low infltion rtes in most countries. In other words, given the slowdown in lending observed in 2013, mesures will continue to be dopted in 2014 to expnd credit volume nd reduce its cost, by lowering reserve requirements in some cses nd cutting interest rtes in others. Executive summry 10

12 Preliminry Overview of the Economies of Ltin Americ nd the Cribben 2013 The globl economy in 2014 will present opportunities nd threts for Ltin Americ nd the Cribben The currency deprecition seen in severl countries in the region in recent months, possibly strengthened by shift in future finncil flows towrds developed countries, could, if sustined, increse incentives for investment in trdble sectors other thn the region s trditionl exports (commodities), while redirecting expenditure to ese pressure on the current ccount. Complementry growth-supporting industril, trde, environmentl, socil nd lbour policies tht tke into ccount the needs of smll nd medium-sized enterprises, could help to lessen the region s structurl heterogeneity. The pthwy of growth combined with greter equlity would thus gin economic nd socil sustinbility, with greter relince from investment nd exports thn in the recent pst. As discussed in other ECLAC documents, this combintion would be ided by socil covennts for investment. Uncertinties tht hve plgued the externl environment in recent yers remin current: these include the possibility of fiscl contrction nd sluggish growth in the United Sttes if the country is unble to rech n greement on the public debt ceiling, nd n uncertin outlook in number of eurozone countries tht hve yet to resolve public finnce difficulties, s public ftigue sets in nd resistnce to djustments builds. In ddition, nnouncements by the United Sttes regrding the tpering of quntittive esing nd the impcts of this represent just the first step in process of globl liquidity nd monetry policy djustment in developed countries in the wke of the globl finncil crisis. Centrl bnk blnce sheets expnded considerbly in developed economies in response to the crisis, nd hve yet to be restored. Regining blnce sheet sustinbility will tke time nd will require significnt djustments in public nd privte finnces. Executive summry 11

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14 Chpter I The interntionl context In 2013, the globl economy showed lcklustre growth, with signs of some recovery in the second hlf of the yer, nd high degree of finncil voltility. Globl economic growth slipped from 2.4% to 2.1%, mtched by slower growth in both developed nd developing countries (see figure I.1). According to informtion from the Interntionl Monetry Fund (IMF) from July 2013, the eurozone economy gin contrcted in 2013, by 0.6% in nnulized terms. This ws cused by the continution of the finncil crisis nd efforts to contin it, lrgely in the form of fiscl usterity progrmmes tht spped domestic demnd nd wekened imports from the rest of the world. 12 Figure I.1 Rel GDP growth by region nd selected country groupings, (Percentges) b 2014 b World Eurozone United Sttes Ltin Americ nd the Cribben Developing countries Chin Jpn Source: Economic Commission for Ltin Americ nd the Cribben (ECLAC), on the bsis of United Ntions, World Economic Sitution nd Prospects. Monthly Briefing, New York, October Estimtes. b Projections. During 2013, there were signs of n end to the downturn nd incipient recovery s the economic contrction esed in some countries, expecttions rose mong consumers nd purchsing mngers, nd unemployment rtes cme down, lbeit remining high. Country risk premiums decresed considerbly, nd politicl risk receded in Greece, Itly nd Portugl, lthough some uncertinty remins over whether certin countries cn exit the crisis (usterity ftigue in Portugl nd wrnings of new bilout for Greece in 2014). The Europen Centrl Bnk (ECB) indicted tht it would continue to pursue monetry stimulus policies for some time to come, mintining low interest rtes nd not ruling out further cuts. Accordingly, in erly November 2013 the ECB lowered its benchmrk interest rte from 0.5% to 0.25%, new ll-time low. Chpter I 13

15 Economic Commission for Ltin Americ nd the Cribben (ECLAC) The United Sttes posted modest growth in 2013, mid difficulties over fiscl policy greement which triggered utomtic spending cuts, nd the effects of the finncil crisis, which hve yet to be fully ddressed. Fiscl expenditure ws estimted to hve dropped by bout 5% in 2013, with respect to The budget deficit nrrowed from 8.3% of GDP in 2012 to 5.8% in 2013, with 2 percentge points contributed by higher revenues nd 0.5 by spending cuts, representing considerble consolidtion effort. 2 These contrctionry fctors were prtilly offset by rising privte demnd, sustined by the beginning of n upturn in lending nd employment. During the lst qurter, the lck of budget greement led to the temporry shutdown of severl government institutions, while only very short-term postponement (until Februry 2014) ws chieved in negotitions over new public debt ceiling. Menwhile, nnouncements of chnges in United Sttes monetry policy lso contributed to turbulence. In My nd June 2013, interntionl finncil mrket voltility spiked fter the United Sttes Federl Reserve nnounced possible tpering of its sset purchse progrmme, depending on the country s economic performnce nd especilly its unemployment rte. Finncil gents ttempted to nticipte this chnge by dpting their portfolios, pushing up returns on United Sttes finncil ssets nd strengthening the dollr. Consequently, the currencies of emerging economies, especilly those most integrted into interntionl finncil mrkets, cme under downwrd pressure. In ddition, the risk premiums of emerging countries, prticulrly those of Ltin Americ, climbed significntly from My. In September, with unemployment still bove the trget level of 6.5%, the Federl Reserve mde new nnouncement, postponing the chnges in its monetry policy. As result, stock indexes jumped, United Sttes bonds yields fell, nd the currencies of severl Ltin Americn countries strengthened, to n extent reversing the effects of the initil nnouncement. Lower growth in developed countries resulted in drop in demnd for developing country exports. Chin in prticulr sw its growth rte fll in reltion to previous yers, s its export growth slowed. This hs led to mjor reblncing of the country s development strtegy, designed to boost consumption t the expense of exports nd investment. The first signs of turning point in the world economy begn to pper in the second hlf of the yer. Severl developed economies, nd especilly the United Sttes, showed signs of erly recovery with n upturn in production nd employment levels, nd improvements in leding indictors. Menwhile, the performnce of some eurozone countries, whose ctivity levels hd slumped in 2012 nd the first hlf of 2013, suggested n end to the downturn in the second hlf of the yer. Recent economic trends in Europe, Jpn nd the United Sttes, long with Chinese economy tht performed slightly better thn initilly expected, hve brightened expecttions somewht for Globl economic expnsion is projected t 2.9% s growth recovers in both developed nd developing countries. 2 United Ntions, World Economic Sitution nd Prospects. Monthly Briefing, New York, October Chpter I 14

16 Chpter II Economic ctivity Growth remined low in Ltin Americ nd the Cribben in 2013 The Ltin Americn nd Cribben region recorded GDP growth of 2.6% in 2013, down from 3.1% in The 2013 performnce represented gin of 1.6% (2.0% in 2012) in the region s per cpit GDP, less thn hlf the verge growth rte for this indictor over (3.7%). These results testify to the continution of the economic slowdown tht hs beleguered the region since Aside from the regionl performnce, the countries growth rtes differed significntly. Sluggish regionl growth in 2013 prtly reflects the lcklustre performnce of the two lrgest economies in Ltin Americ nd the Cribben: Brzil (2.4%) nd Mexico (1.3%). 3 Excluding these two countries, the region s GDP rose by 4.1%. Economic growth ws most robust in Prguy (13%), followed by Pnm (7.5%), the Plurintionl Stte of Bolivi (6.4%) nd Peru (5.2%). The economies of Argentin, Chile, Colombi, Guyn, Hiti, Nicrgu nd Uruguy grew t between 4% nd 5% (see figure II.1). Figure II.1 Ltin Americ nd the Cribben: GDP growth projections, 2013 (Percentges bsed on dollrs t constnt 2005 prices) Prguy Pnm Bolivi (Plur. Stte of) Peru Guyn Nicrgu Argentin Uruguy Chile Colombi Hiti Surinme Ecudor Centrl Americ (+3) Guteml South Americ (10 countries) Cost Ric Cub Dominicn Rep. Ltin Americ nd the Cribben Hondurs Brzil Sint Vincent nd the Grendines El Slvdor Bhms Belize Sint Kitts nd Nevis Trinidd nd Tobgo Antigu nd Brbud Grend Mexico The Cribben Venezuel (Bol. Rep. of) Sint Luci Jmic Dominic Brbdos These two economies ccount for bout 63% of the totl GDP of Ltin Americ nd the Cribben. Chpter II 15

17 Economic Commission for Ltin Americ nd the Cribben (ECLAC) Of the subregions, South Americ posted growth of 3.1% (compred with 2.5% in 2012), slightly behind the 3.7% for the group formed by Centrl Americ plus the Dominicn Republic nd Hiti (4.7% in 2012). Growth remined sluggish in the English- nd Dutch-speking Cribben (1.3%), with Brbdos (-0.7%) nd Dominic (-0.5%) recording negtive growth nd the Jmicn economy t virtul stndstill (0.1%). The slowdown in regionl growth until the first qurter of 2013 ws prtilly reversed in the following qurters. Nevertheless, regionl qurterly GDP growth rtes re well below those of 2010 nd 2011 (see figure II.2). Figure II.2 Ltin Americ nd the Cribben: qurterly gross domestic product, vrition in reltion to the sme qurter of the previous yer, 2010 to third qurter 2013 (Percentges bsed on dollrs t constnt 2005 prices) I II III IV I II III IV I II III IV I II III As in previous yers, domestic demnd boosted growth Regionl growth ws primrily driven by robust domestic demnd (see figure II.3), thnks to both consumption, which dded 2.8 percentge points to GDP growth, nd investment, which contributed 0.9 percentge points. Net exports gin contributed negtively to GDP growth (-0.8 percentge points), but less so thn in previous yers. Growth in consumption ws lrgely underpinned by privte consumption (up 3.4%), which nevertheless lost momentum despite outpcing GDP. This, in turn, ws lrgely reflection of employment nd the wge bill, which continued to rise in the region, but more slowly thn before. Public consumption lso posted slcker growth, t 2.5%, the lowest rte since Gross fixed cpitl formtion expnded by 4.7% in the region, fuelled by investment in mchinery nd equipment. Construction ctivity sw modest upturn, s well, lthough with uneven performnces between countries: contrctions in the Bolivrin Republic of Venezuel nd the Dominicn Republic, nd increses tht topped 10% in Pnm, Prguy nd Peru. Mesured s percentge of GDP bsed on dollrs t constnt 2005 prices, gross fixed cpitl formtion stood t 23.2%, or 0.5 percentge points higher thn the 2012 figure. Gross domestic investment slowed, which indictes n djustment in the ccumultion of inventories in the region. Mesured in current dollrs, gross domestic investment remined t 21.4% of GDP, equivlent to the 2012 rtio nd significntly lower thn in rpidly growing countries such s Indi nd Chin, where it exceeds (sometimes comfortbly) 30% of GDP. Goods nd services imports incresed by 4.9% in constnt terms ( similr rte to tht observed in 2012), reflecting the performnce of domestic demnd. Rel exports of goods nd services were up by 2.3% (compred with 3.1% in 2012), continuing the slowdown tht begn in The regionl figure notwithstnding, in Chile, the Dominicn Republic, Guteml, Nicrgu, Pnm, Prguy nd the Plurintionl Stte of Bolivi, exports of goods nd services grew by more thn 5% in rel terms. Chpter II 16

18 Preliminry Overview of the Economies of Ltin Americ nd the Cribben Figure II.3 Ltin Americ: GDP vrition nd contribution to growth by the components of domestic demnd nd net exports, (Percentges bsed on dollrs t constnt 2005 prices) Net exports Investment Totl consumption GDP Chpter II The figures for 2013 re projections. Commerce, construction nd finncil nd business services were more buoynt Privte consumption, which ws the min driver of GDP growth in 2013, boosted incresed ctivity in the commerce sector, while the return of norml wether conditions llowed the griculturl sectors of Argentin, Brzil nd Prguy to post higher growth rtes. Robust ctivity in commerce, resturnts nd hotels lso benefited from tourism growth in 2013, lthough the increse in interntionl tourist rrivls ws smller thn in According to figures from the World Tourism Orgniztion (UNWTO) for the first eight months of 2013, interntionl tourist rrivls rose by 3.0% yer-on-yer in Centrl Americ (7.3% in 2012), 1.6% in South Americ (5.0% in 2012) nd 0.1% in the Cribben (3.7% in 2012). Mining ctivity posted no gin over 2012 t the regionl level, lthough Nicrgu, Pnm, the Plurintionl Stte of Bolivi, Uruguy nd some economies of the Estern Cribben Currency Union (ECCU) posted double-digit expnsion. Mnufcturing lso performed modestly, with the countries generlly experiencing low growth. Although the construction sector posted nnul growth of less thn 2% for the region, performnce differed widely between countries. Antigu nd Brbud, Colombi, Grend nd Sint Vincent nd the Grendines sw construction ctivity surge by over 10%, while Nicrgu nd Pnm posted rtes of over 20%. The sector posted decline in the Bolivrin Republic of Venezuel, Mexico nd some Centrl Americn nd Cribben economies, however. 17

19

20 Chpter III Employment nd wges Job cretion slowed Preliminry informtion shows tht unemployment fell once gin in the region, lbeit edging down very slightly from 6.4% in 2012 to 6.3% in Contrsting with the robust performnce of the lbour mrket in 2012, however, this yer the dip in unemployment ws not due to job cretion but rther to reduction in the lbour supply, expressed s lower overll prticiption rte. Job cretion lost momentum during After stedy climb from 2002 (with rte of 51.8%) to 2012 (55.9%), interrupted only by the outbrek of the economic nd finncil crisis in 2009, the rte tiled off, lbeit by just 0.1 of percentge point. This slight fll-off contrsts with the 0.4 percentge-point rise recorded in 2012, despite similr economic growth rte in both yers. As shown in tble III.1, in 2012 employment-output elsticity exceeded 1 level tht is not normlly sustinble in some countries, including Brzil, Colombi nd Mexico, whose size ffords them significnt impct on the region s weighted verges. 4 Tble III.1 Ltin Americ nd the Cribben (selected countries): simple employment-output elsticity nd wge employment-output elsticity, 2012 nd 2013 Elsticities 2012 Elsticities 2013 Employment Wge employment Employment Wge employment Argentin b 31 conurbtions Brzil Six metropolitn res Chile Ntionl totl Colombi Ntionl totl Cost Ric Ntionl totl Dominicn Republic Ntionl totl Ecudor Ntionl totl c El Slvdor Ntionl totl Hondurs Ntionl totl Jmic Ntionl totl Mexico Ntionl totl Pnm Ntionl totl Peru Metropolitn Lim Uruguy Ntionl totl Venezuel (Bolivrin Republic of) Ntionl totl Ltin Americ nd the Cribben Medin Bsed on projected economic growth for the yer nd yer-on-yer growth in employment between the first nd third qurters. b Job cretion refers to the first hlf-yer. c Refers to the urbn totl. 4 Dt on the lbour sitution in Brzil re tken from the monthly employment survey conducted in six metropolitn res, where the employment rte went up by 2.2% on verge for The ntionl household survey indicted slightly smller rise of 1.6% in employment. This does not men, however, tht the performnce of the metropolitn res ws completely typicl in showing much lrger expnsion in employment thn the rest of the country. On the contrry, the expnsion in wge employment ws even greter t the ntionl level (2.9%) thn in the metropolitn res (2.6%). Chpter III 19

21 Economic Commission for Ltin Americ nd the Cribben (ECLAC) Job cretion slowed in 2013 nd, in severl of the region s lrger countries, including Argentin, Brzil, Colombi nd Mexico, employment-output elsticity fell shrply. Although these flls were offset in the regionl medin by increses in other countries (Bolivrin Republic of Venezuel, Chile, Hondurs, Jmic nd Peru), with the rtio of GDP growth to employment growth flling in the lrger economies, 2013 employment growth slipped below trend of recent yers (see figure III.1). In prticulr, the output elsticity of wge employment dropped in the medin. Figure III. 1 Ltin Americ nd the Cribben: economic growth nd employment rte, (Percentges nd percentge points) Economic growth (percentges) Chpter III Vrition in the employment rte (percentge points) GDP growth Employment rte vrition (right scle) Projections. Wge employment grew fster thn totl employment in most countries. For the 12 economies for which comprble informtion ws vilble, wge employment rose by 1.6%, s ginst 1.2% for totl employment. However, wge employment growth ws considerbly down on the 2012 figure of 3.1%, nd lgged totl employment in few countries. As figure III.2 shows, job cretion slowed more shrply during the first three qurters of the yer. Yer-on-yer, the employment rte incresed slightly in the first qurter of 2013, but slipped in the second nd third. The figure lso shows the fll in the unemployment rte flttening in 2013 compred with previous yers; nevertheless, unemployment continued to decline yer-on-yer in ll four qurters. Figure III.2 Ltin Americ nd the Cribben (10 countries): yer-on-yer vrition in employment nd unemployment rtes, first-qurter 2008 to third-qurter of 2013 (Percentge points) Q1 Q2 Q Q1 Q1 Q2 Q Q4 Q1 Q2 Q Q4 Q1 Q2 Q Q4 Q1 Q2 Q Q4 Q1 Q2 Q3/prel 2013 Employment rte Unemployment rte 20

22 Preliminry Overview of the Economies of Ltin Americ nd the Cribben 2013 The positive trend in the unemployment rte ws ttributble to slower expnsion of the economiclly ctive popultion, reflecting lower lbour mrket prticiption rte. Even so, t the regionl level, the long-term rise in the femle prticiption rte hs clerly continued, wheres the mle prticiption rte hs diminished. As shown in figure III.3, the gps between the mle nd femle employment nd unemployment rtes hve nrrowed. Figure III.3 Ltin Americ nd the Cribben (15 countries): yer-on-yer vrition in the prticiption, employment nd unemployment rtes by sex, verge for the first to third qurters of 2013 (Percentge points) Mle Femle Mle Femle Mle Femle Prticiption rte Employment rte Unemployment rte Weighted verge Simple verge Youth unemployment hs risen Slckening job cretion seems to hve impcted young people the most, with the employment rte flling nd the unemployment rising for young people prcticlly throughout the region (see tble III.2). Conversely, the dult employment rte rose slightly nd the unemployment rte declined in most countries. In some countries, including Brzil, Chile nd Peru, the fll in the employment rte lso reflected lower prticiption by young people in the lbour mrket, contrsting with zero growth in the dult prticiption rte in these countries. This my be due in prt to the long-term tendency for young people to remin longer in the eduction system, but nother contributing fctor in 2013 ws undoubtedly the fct tht new entrnts to the lbour mrket (mong whom young people re overrepresented, for obvious resons) re the first to be ffected when job cretion cools off. Tble III.2 Ltin Americ nd the Cribben (selected countries): vrition in the youth nd dult prticiption, employment nd unemployment rtes, verge for the first to third qurters of 2013 compred with the sme period of the previous yer (Percentge points) Prticiption rte Employment rte Unemployment rte Youth Adult Youth Adult Youth Adult Argentin Brzil Chile Colombi Dominicn Republic Hondurs Jmic Pnm Peru Uruguy Venezuel (Bolivrin Republic of) Ltin Americ nd the Cribben, medin Source: Economic Commission for Ltin Americ nd the Cribben (ECLAC) on the bsis of officil figures. Note: Youth refers to persons ged yer, except in Argentin (14-29), Colombi (14-28), Peru (14-24) nd Dominicn Republic (10-19). In Argentin, the dt re verges for mles nd femles in the respective ge groups. Chpter III 21

23 Economic Commission for Ltin Americ nd the Cribben (ECLAC) The slowdown in job cretion lso reflects the trend in forml employment. Figure III.4 shows tht 2013 growth rtes for this type of better-qulity employment were down on the 2012 figure lmost cross the bord. Moreover, forml employment genertion slowed noticebly in mny countries throughout the yer. Figure III.4 Ltin Americ (selected countries): yer-on-yer vrition in forml employment, first qurter 2012 to third qurter 2013 (Percentges) Argentin Brzil Chile Cost Ric Mexico Nicrgu Peru Uruguy I-2012 II-2012 III-2012 IV-2012 I-2013 II-2013 III-2013 The counterprt to lower employment-output elsticity is higher lbour productivity. The megre 0.9% rise estimted in the weighted verge of this indictor for the region overll in 2012 chiefly reflects the performnce of Brzil nd Mexico, since the simple verge gin for 14 countries ws 1.5%. Preliminry dt for 2013 point to 1.6% improvement in weighted verge lbour productivity for the region, with simple verge of 2.5%. With employment growth slowing, so did growth in the wge bill, which cooled privte consumption In most countries for which informtion ws vilble, growth in rel wges slowed slightly (see sttisticl nnex tble A.21) owing to smller increses in nominl wges, probbly reflecting slckening demnd for lbour nd, in some cses, n uptick in infltion. The countries where rel wges gined more thn in 2012 (Chile, Colombi nd Prguy) posted lower yer-on-yer infltion rtes, bsed on the cumultive verge for the first three qurters. Slowing job cretion nd the smller increses in rel lbour income resulted in smller wge bill expnsion thn the previous yer. After climbing 5.4% in 2012, the wge bill (weighted verge for nine countries) rose just 2.7% in 2013, which wekened household consumption s driver of demnd nd, thus, s n engine of economic growth. In 2013, severl countries took steps to strengthen integrtion into the lbour mrket, protect the unemployed, improve working conditions for specific groups or improve the efficiency of institutions (see tble III.3). In short, one of the outcomes of the modest economic growth ws slowdown in job cretion, s wekening lbour demnd slowed wge employment cretion nd forml employment growth. Rel wges were up by less thn in 2012, lbeit not in ll the countries, such tht totl lbour income drove domestic demnd growth less strongly. While cooling job cretion hurt youth lbour indictors (employment, unemployment), the regionwide ggregte showed modest improvements (dmittedly with differences from one country to the next). In prticulr, the unemployment rte ws slightly down nd wge employment normlly of better qulity climbed more vigorously thn non-wge employment. A contributing fctor in this seems to hve been the robust job cretion of the pst decde: becuse the lbour context hs become reltively more fvourble ( higher verge employment rte per household), the weker demnd for lbour did not, s in the pst, force households to resort in lrge numbers to own-ccount work to offset income losses. This my lso hve plyed prt in reducing the prticiption rte, which, in turn helped to bring down the unemployment rte. Chpter III 22