2014年-世界发展银行全球_International_Flows_to_Latin_America--Rocking_the_Boat__LAC_Semiannual_Report_April_2014_55页_2mb

Summary of "International Flows to Latin America: Rocking the Boat?"

Core Content

This semiannual report by the World Bank's Office of the Regional Chief Economist analyzes the economic and financial outlook for Latin America and the Caribbean (LAC) in the context of global financial volatility and the shifting dynamics of international capital flows. It highlights the impact of external shocks on LAC's growth and the region's evolving resilience to these challenges.

Main Points

• Global Financial Volatility:
  Global financial markets remain volatile due to shifts in expectations regarding monetary policy normalization in high-income countries, particularly the U.S., and concerns about the Chinese economy's future. These factors have led to a significant outflow of capital from emerging markets (EMs) to safer assets in high-income countries.

• Capital Flow Trends:

  • A wave of capital flows from EMs to high-income countries has intensified, especially after the U.S. Federal Reserve signaled the end of quantitative easing in May 2013.
  • The U.S. yield curve has flattened, reflecting both a "pull" effect from rising interest rates and a "push" effect from increased risk aversion towards EMs.
  • Commodity prices, except for food, have been flat or falling, with industrial metals particularly affected by the slowdown in China.

• LAC Growth Outlook:

  • LAC's growth is expected to be modest, at 2.3% in 2014, slightly below the 2.4% growth rate in 2013 and significantly lower than the pre-2008 crisis rates.
  • Growth in the region is constrained by low domestic savings and reliance on foreign financing.
  • There is significant heterogeneity in growth forecasts across LAC countries. For example, Panama is expected to grow at ~7%, while Venezuela is forecast to have negative growth.

• FDI and Remittances:

  • FDI and remittances are more stable than other forms of capital flows and have become key sources of financing for LAC.
  • FDI can raise productivity through technological and knowledge spillovers, while remittances tend to increase household consumption but may hinder long-term growth.
  • Both flows can contribute to Dutch Disease-type effects, where the real exchange rate appreciates, reducing external competitiveness.
  • FDI and remittances are substitutes in some sense, as they are both influenced by the institutional and business environment of LAC countries, though in opposite directions.

• Resilience to External Shocks:

  • LAC has become less vulnerable to external shocks due to stronger macro-financial buffers and better policy frameworks.
  • Countries with inflation targeting regimes (representing ~75% of LAC GDP and population) are expected to experience more stable business cycles, similar to advanced economies.
  • However, many Central American and Caribbean countries remain highly exposed and vulnerable due to limited fiscal and monetary capacity to respond to shocks.

• Challenges for LAC:

  • Despite the shift to more stable capital flows, FDI and remittances still pose major challenges to LAC's growth.
  • The region has a chronic need for foreign financing due to its low savings rate.
  • Countries relying heavily on remittances face greater challenges, as these flows do not contribute to productivity growth.
  • There is a need for improved domestic policies and institutions to harness the positive externalities of FDI and to redirect remittances toward productive investments.

Key Information

• Global Risk Aversion:
  EM risk aversion has increased, as evidenced by rising EMBI spreads and the VIX index, indicating heightened anxiety about EMs' economic stability.

• China's Economic Slowdown:

  • China's real GDP growth has slowed from over 11% in 2010 to ~7.5% in 2014.
  • The slowdown is associated with a transition to a more domestic demand-driven growth model, but it is also linked to excess capacity and deleveraging.
  • The deleveraging process in China is expected to hinder growth and further reduce commodity prices, especially industrial metals.

• Commodity Price Trends:

  • Commodity prices, particularly industrial metals, have been falling, reflecting global demand weakness.
  • The Global Wind Model forecasts that global trade will grow by 4.5% in 2014, but this is still below pre-crisis levels and subject to downside risks.

• Regional Variations:

  • Mexico is expected to grow at ~3%, above the regional average, due to recent reforms in banking, education, telecommunications, tax, and energy.
  • Brazil faces lower growth prospects, with consensus forecasts putting growth at or below 2%, as its reform agenda has not yet fully materialized.
  • Chile and Colombia continue to outperform the region with growth above 3.5%, due to increased investment in recent years.

• Implications for LAC:

  • The reliance on foreign financing makes LAC susceptible to external volatility.
  • The shift from debt to equity in the region's financing structure has reduced vulnerability to rollover risks and interest rate fluctuations.
  • The combination of exchange rate flexibility and high international reserves helps deter self-fulfilling financial runs.

Conclusion

The LAC region is entering a low-growth phase due to the receding external tailwinds and global headwinds. While the region has improved its resilience to external shocks, it still faces downside risks from global financial volatility, China's economic slowdown, and commodity price declines. The stability of FDI and remittances offers some comfort, but these flows also pose challenges to long-term growth. Therefore, improving domestic policies and institutions is essential to enhance growth potential and mitigate the negative effects of external shocks.