How the IMF Projections for Latin American Countries Can Affect Your Business
The International Monetary Fund published last semester a report with the global growth projections for the economy, including predictions for the Latin American nations. However, a few months after the release of the report, the institution revised its prognostic, maintaining some indicators and changing others.
We selected the points of the report that might interest you the most and listed some relevant additional information to help you have an accurate forecast for 2019.
Overall, the IMF predictions bring good indicators for Latin America, especially for Chile, Peru, and Colombia. In its most recent revisions, the fund progressively reviewed the growth of the first two and maintained its positive growth forecast for Colombia.
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The prevision is that Latin America keeps the positive growth rhythm for the next years. Experts from Americas Market Intelligence (AMI) estimate that for 2023 not only the region will grow but will be equivalent to the East Asian market. Not only that but the agency also points out that the region is passing through a stable and ongoing recovery. The prognostic is that by 2021 Latin America will have recovered the USD 1 trillion of the Gross Domestic Product (GDP) that were lost in 2015/2016 — fact that, according to AMI, might regain investors’ trust.
Yet, due to the political instability of some Latin American countries, not to mention the possibility of a confrontation between the United States and China, the IMF decreased the region’s projections. Even so, the cut was not that significant, only 0.2 percentage points less than originally foreseen in the IMF report, going from 2.8% to 2.6%.
World’s Economy Predictions
The IMF predicted a growth of two percentage points at the global level, decreasing from 3.9% to 3.7%. This, due to a possible commercial confrontation between the two largest economic potencies of the 21st century: the United States and China.
According to the Chilean newspaper El Mercurio, the president of the Central Bank of China portrayed the country as a victim of US protectionist measures.
Even though the IMF prognosed that US growth will decrease from 2.7% to 2.5% and China’s from 6.4% to 6.2%, it is important to note that the decisions taken by the North American country in order to consolidate itself as the sovereign nation will result in consequences.
Overall, it is important to pay attention to the relationship of these countries in order to have a clearer notion on how the world economy will affect Latin America.
AMI forecasts for the US is that the dollar growth, employment rates, and minimum wages will remain strong, encouraging the Latin American economies.
Predictions per country
In the original report, the IMF stated that, following the deep recession of the 2015-2016 cycle, the Brazilian economy started to grow again in 2017 (1%), adding that there was an expected a growth of 2.3% for 2018 and 2,5% for 2019.
After the revision, the institution announced that the Brazilian economy is progressing at a moderate pace and reduced the growth prediction to 1,8% for 2018, but kept the initial prevision of 2,5% for 2019.
Furthermore, AMI also signaled that, beyond the positive growth for 2019, the forecast for 2019, the prediction for 2020 is also positive, reaching 2.7%. According to the agency, the positive prognostic is connected to the market’s positive reaction to the election of Brazil’s new president, Jair Bolsonaro.
Read more: “Brazil Back In The Spotlight of Credit Suisse”
México is passing through a recovery at a slower pace due to the “uncertainties over the economic and trade relationship of the country with the United States”, as signaled by the IMF. Still, the IMF maintained its initial prediction of a 2.3% growth for this year.
The institution emphasized that, despite the undefined scenario of the Mexican economy, the country is moving forward this year by virtue of the strong growth of the United States. “In Mexico, the implementation of certain aspects of the broad reform agenda approved five years ago has progressed well, including the energy, finance and telecommunications sectors”, states the report. Regarding the forecast for 2019, the institution slightly reduced its estimation for the country by 0.3 percentage points, from 3% to 2.7%.
Colombia is one of the countries which forecast remained unchanged. The IMF predicted a 2.7% growth for this year and 3.3% for 2019. For 2023, the Fund states that the growth will be of 3.5%.
Colombia’s economic recovery stalled due to electoral uncertainty, however, the investment policies of the recently elected president, Iván Duque, should attract more investors – at least this is what AMI points out.
Although the International Monetary Fund has lowered its growth expectations for Argentina, the institution positively highlighted a “gradual recovery” for 2019 and 2020 “that will be supported by a regaining of trust through a stabilization program that has the support of the IMF “.
Moreover, AMI also adds that, despite the country experiencing an economic decline in 2018, the forecast for Argentina is positive. The country is to grow 2% in 2019 and 3.5% by 2020.
The good projections are based above all on IMF strategies that will calm and inspire trust on the market as well as the investors, who will then continue to allocate capital to the country. AMI’s experts also point out that President Macri will have to stand firm, with a likely reelection in 2019 – which is a positive indicator from an economic perspective.
One of the countries with the best performance in the IMF report has been, undoubtedly, Chile. The Fund has progressively revised up its projections for 2018, which have gone from 3.4% to 4% in the most recent revision.
The estimation has also increased for the next years, 3.4% in 2019 and 3.2% in 2020, forecasts also validated by the AMI study.
In the most recent revision, the IMF increased the growth projection for Peru from 3.7% to 4.1%. AMI also highlighted a positive scenario with good estimations for 2019 and 2010, that might reach a growth of 3.9% and 3,8% respectively.
How can international businesses grow in this economic environment?
If you have a travel agency or an e-commerce store and sells to Latin America, you shouldn’t stay away from this international economic sway. In fact, if you want your business to have better chances, the first thing you should do is getting to know the commercial environment. And no, we are not talking (only) about your local competitors.
If your agency sells to Argentina, for example, it is important to understand that there might be a chance of suffering from the complicated economic year that the country is experiencing. Yet, it must be also taken into account that the forecasts for the following years are positive.
The secret here is to understand changes, manage them and move forward. Being in a declining business environment means customers with lower purchasing power; therefore, your strategies should focus on how to sell to your target audience.
If, for instance, you previously sold tour packages to Europe from Buenos Aires; Now you can look for options in Latin America, which means lower costs. Invite your clients to know Cancun, Cuzco or Rio de Janeiro. Create local travel packages to Ushuaia, encourage tourism within Latin America. Creativity is key in economic growth.
It should be noted that, according to AMI, although the Latin American region faces some volatilities, consumers in these countries experience a positive sentiment regarding consumption, which implies an increase in the confidence of consumers in countries such as Colombia, Mexico, Peru, Brazil, and Chile. That translates into an upward propensity to consume, according to the agency.
5 keys to success based on IMF projections
Steve Jobs once said, “I am convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance”. As the leader of a business, your job is to trust yourself and keep it active, especially when selling overseas. It that’s your case, here are some tips that might help you through your Latin American journey:
- Be optimistic, Latin America is a region that promises growth.
- Keep innovating. The vanguard will be vital this 2019; Have your website well optimized (fast, readable, dynamic), make life simple for your customers (local payment methods), among others.
- Manage the best possible customer service, as this is the key to success in the business world.
- Do not be afraid of social networks. Get closer to the public, explore their tastes, and try to understand them to the fullest.
- Stay up to date concerning global economic dynamics.
The projections are there and, in general terms, Latin America enters its third year in gradual recovery, with good predictions for growth and investment for the future. Take advantage of the estimations and start charting your strategies!