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Latam's 2020 growth may turn negative due to U.S.-China trade war: IADB

EconomyJul 17, 2019 05:11PM ET
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© Reuters. Latam's 2020 growth may turn negative due to U.S.-China trade war: IADB

By Luc Cohen and Alexandra Valencia

GUAYAQUIL, Ecuador (Reuters) - Latin American and Caribbean economies could shrink in 2020 on average if U.S.-China trade tensions are not resolved, because the world's two largest economies are major trading partners for the region, a senior economist said on Wednesday.

Regional growth in 2019 is expected at 1.1%, versus an estimate in March of 1.4%, Eric Parrado, chief economist at the Washington-based Inter-American Development Bank (IADB), told reporters at the Bank's annual meeting in the Ecuadorean financial capital of Guayaquil.

This is due to lower-than-expected first-quarter growth in the region's three largest economies: Brazil, Mexico and Argentina. While the IADB is maintaining its 2.3% regional growth forecast for 2020, Parrado said U.S.-China trade tensions posed significant risks.

"If we have a scenario of a combination of shocks in which China's growth falls, U.S. growth falls, and asset prices also fall, we could have a reduction in Latin American growth rates that could reach negative territory in 2020," Parrado said at a press conference.

The hyperinflationary economic collapse in Venezuela is not a major factor, since the once-wealthy OPEC nation's economy has contracted so drastically in recent years that it no longer weighs heavily on the regional average.

But Parrado acknowledged that the growing exodus of migrants from Venezuela, totaling some 4 million since 2015, could have a short-term impact on growth in neighboring countries.

He estimated that Ecuador and Colombia were spending around 0.5% of annual gross domestic product on health, education, housing and security services related to Venezuelan migration.

The IADB in May set up a fund with $100 million of its own resources to help countries and subnational governments deal with migratory flows.

While the region's needs are greater than that, the IADB wanted to start lending money quickly rather than begin a potentially time-consuming fundraising effort, said Alexandre Meira da Rosa, the IADB's vice president for countries.

"I can guarantee you that it is not enough, but the philosophy of the bank was to do the most we could in a time frame that served countries," Meira da Rosa said in an interview, adding that the bank was appealing to the international community to support the fund.

Latam's 2020 growth may turn negative due to U.S.-China trade war: IADB
 

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