Why Latin America Won’t Be Able to Fight Off a Recession

A global recession appears to be upcoming and Latin America could find it particularly difficult to recover, according to recent media reports about the region’s economic outlook.

As Reuters reports, for example, both Mexico and Brazil are Latin America’s largest economies. However, issues have arisen for both. “Weak budgetary positions are a fiscal straitjacket for governments,” according to the news publication. “Meanwhile, central banks are wary of cutting interest rates too far for fear of sending their currencies into a tailspin – hurting foreign investment and stoking inflation.”

As Bloomberg reported earlier in August, for instance, Brazil has pretty much entered a recession “in the second quarter according to a key gauge of economic activity that comes as policy makers grapple with high unemployment and weak investments as well as a global slowdown.”

Contributing to these economic issues are the fact that consumer demand is down, prompting President Jair Bolsonaro to attempt to counteract this. His plan: give “workers access to cash from a severance fund,” according to the publication. But this may not likely be enough, according to the Bloomberg article. “The result does not change the overall picture of sluggish growth and ample economic slack, which is the main reason why the central bank engaged in a new round of monetary easing,” said Adriana Dupita, Latin America economist for Bloomberg Economics, in an interview with the publication.

For Mexico, meanwhile, an austerity plan to fight corruption is having negative impacts on the economy, according to NPR, which likely wouldn’t help the Latin American country to fend off a recession. “Mexico’s president has cut thousands of government jobs to fight corruption. Critics say he is putting the country in danger — especially when it comes to attracting foreign investment,” according to NPR.

But Brazil and Mexico, however, aren’t the only countries suffering economically in Latin America. In fact, Argentina, which boasts the third-largest economy for the area, is undergoing extensive political problems, according to Reuters, which is affecting its economic outlook greatly. For example, “Even before Argentina’s meltdown, the region’s growth outlook was darkening. Last month, the International Monetary Fund slashed its 2019 economic growth forecast for Latin America by more than half to 0.6%, from 1.4% in April.”

As one analyst, Alberto Ramos, head of Latin American research at Goldman Sachs in New York, told the news service: “The region is facing significant headwinds and there’s not much that can be done about it in the short term, unfortunately.”

In sum, a variety of issues are negatively affecting the largest economies in Latin America. With Mexico and Brazil both in weak budgetary positions, Argentina’s political problems have led to a poor economic outlook with little chance of recovery in the coming months.