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Summary of World Economic and Financial Surveys: Western Hemisphere

Core Content

The April 2017 Regional Economic Outlook: Western Hemisphere provides an analysis of the economic conditions and outlook for the United States, Canada, Latin America and the Caribbean, and the broader global context. The report highlights a tale of two adjustments—one in the United States and Canada, and another in Latin America and the Caribbean—each shaped by different economic and policy dynamics.

Main Points

Global Economic Outlook

• Global Growth in 2016 was the weakest since 2008-09, but economic momentum improved in the second half of the year, especially in major advanced economies.
• 2017-2018 growth is projected to rise modestly from 3.1% in 2016 to 3.5% and 3.6% respectively.
• Advanced economies are expected to grow at a slightly higher rate than in 2016, with the United States leading the rebound due to fiscal stimulus and monetary tightening.
• Emerging market and developing economies are projected to see stronger growth, although risks remain due to policy uncertainty and global financial conditions.
• China is expected to grow at 6.2% in 2017, driven by stronger-than-expected policy support.
• Global risks include economic nationalism, trade restrictions, immigration policies, and geopolitical tensions, which could lead to reduced trade and investment flows and wider financial volatility.

United States and Canada Outlook

• The U.S. economy regained momentum in the second half of 2016, with strong job creation, rising disposable income, and consumer spending.
• Real GDP growth in 2016 settled at 1.9% (seasonally adjusted annual rate), with consumer spending as the main driver of growth.
• Core inflation remains below the Federal Reserve’s 2% target, but is expected to rise gradually to meet it by mid-2018.
• U.S. policy mix is shifting under the new administration, with more fiscal stimulus and a faster pace of monetary tightening.
• The U.S. current account deficit is projected to widen to about 3.5% of GDP by 2020, and public debt is expected to reach 110% of GDP by 2022.
• Canada has promising prospects but faces higher uncertainty due to its reliance on U.S. demand and global policy shifts.

Latin America and the Caribbean Outlook

• The region is recovering from a 2016 recession, with divergent outcomes across countries.
• Central America shows relatively robust growth, while Argentina, Brazil, Ecuador, and Venezuela experienced deep contractions.
• Growth is expected to improve in 2017 and 2018, but the outlook is weaker than previously projected.
• Medium-term growth is projected at about 2.6%, influenced by commodity price rebounds and improved partner demand.
• Risks to regional growth have widened due to increased global policy uncertainty.
• Fiscal and external adjustments are necessary to preserve or rebuild policy buffers.
• Structural reforms are emphasized to close infrastructure gaps, improve governance, and enhance education and female labor participation.

External Adjustment to Terms-of-Trade Shifts

• External adjustment in Latin America has historically occurred through domestic demand compression rather than supply-side growth.
• Real depreciation has boosted noncommodity exports and reduced imports, with a lower sacrifice ratio for countries with flexible exchange rates.
• Rigid exchange rate regimes face higher adjustment costs due to increased use of flexible regimes in trading partners.
• Export responses to depreciation are sluggish overall, but manufacturing sectors show a stronger response than commodity sectors.

Capital Flows and Investor Base

• Capital inflows to Latin America and other emerging markets are strongly influenced by global cyclical factors and country-specific structural factors.
• Good governance, solid institutions, and regulatory frameworks are key to attracting long-term capital inflows.
• Deep domestic financial markets and exchange rate flexibility are effective in reducing capital flow vulnerability.

Migration and Remittances

• Migration and remittances have major economic and social impacts on the region.
• Outward migration may reduce labor supply and productivity, but remittances act as a stabilizing factor.
• Remittances serve as a stable source of external financing, particularly in Central America and the Caribbean.
• However, reliance on U.S.-origin remittances poses risks due to cyclical factors and possible changes in U.S. immigration policy.
• Targeted reforms to leverage skilled workers can reduce outward migration and its adverse effects.
• Policies to reduce transaction costs and promote formal remittance channels are recommended to enhance the benefits of remittances.

Key Information

• The report highlights a global shift toward economic nationalism, trade restrictions, and immigration policies, which increase risks for global growth.
• U.S. policy changes, including fiscal stimulus and monetary tightening, are expected to influence global markets.
• Latin America faces divergent growth paths, with some countries experiencing sharp recessions.
• External and fiscal adjustments are necessary to address structural challenges and preserve policy buffers.
• Structural reforms in infrastructure, governance, education, and labor markets are critical for sustainable growth.
• Remittances play a key role in stabilizing economies, but over-reliance on them poses risks.

Conclusion

The Western Hemisphere is navigating a complex global environment with modest growth and increased risks. The United States and Canada are expected to see solid growth in the short term, while Latin America and the Caribbean are recovering from a regional recession. Fiscal and external adjustments, structural reforms, and policy choices will be key in shaping the future outlook. The report underscores the importance of reducing policy uncertainty, improving governance, and enhancing financial resilience in the region.