From the Wharton Business School’s online comments: Buoyed by high prices for the commodities they export, the major nations of Latin America have enjoyed strong growth in recent years, but that slowed down in 2014. Last year, the aggregate growth rate for gross domestic products (GDP) in the region was just 1.1%, the slowest rate since 2009.
For 2015, the UN Economic Commission for Latin America (ECLAC) expects regional growth to recover to 2.2%. This year, Brazil, the world’s seventh-largest economy, is forecast by ECLAC to grow by 1.3%.
Though ECLAC may look at the region’s nations en masse, it would be a mistake to think of it as one homogeneous economic zone. Mexico and Central America export chiefly to hte US. Now that the US economy is recovering, they are doing better.
The sub-region which covers much of South American including Brazil is where most of the countries are essentially exporters of commodities and energy, largely agricultural commodities and minerals such as iron ore. These countries have been beaten up by the slowdown in demand for their commodity exports from China. Chile is also having trouble because of dropping commodity prices, especially of copper.
Bolivia, Venezuela and Argentina are “places where the problems are essentially self-inflicted because of their populist policies which have discouraged foreign investment and trade.
A fourth sub-region to is the Caribbean which is the subject of increased attention now thanks to the recent economic and diplomatic overtures to Cuba.
Given its vast area, huge population and immense natural resources, Brazil is the key problem in South America. The country’s challenges aren’t limited to a weakening demand for commodity exports. Stifing regulations, lack of a trained workforce and a corrupt political system are throttling economic development.
Mexico’s economic expansion will be buoyed by the continued rapid growth of its automotive sector. In 2014 alone, Honda began production at a new $800 million plant in Guanajuato state; Mazda opened its first plant in North America, a $770 million facility also in Guanajuato, and Kia announced plans for a new $1 billion plant in Nuevo Leon. Other major firms preparing to open new plants in Mexico include Audi and BMW. Guillen notes that these investors “are not going to go anywhere” else, because their plants are “becoming increasingly more competitive” with auto factories elsewhere in the world. He adds that Mexican plants “also have another advantage; they have cheap energy coming from North America.”
Like Brazil, however, Mexico faces political challenges that could cloud its prospects for faster growth. Can promise overcome corruption? Latin America’s Future
