Growth is back in South America

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By Financial Times

After the collapse of the commodity boom, South America suffered a long, hard and deep slowdown. But now growth is coming back. It may even be stepping up a gear.

In Brazil, falling inflation and a steep drop in interest rates has helped expand consumption. Colombia is enjoying the same. In Argentina, fiscal pump priming ahead of October’s crucial midterm elections is helping to goose activity. Temporary factors that weighed on growth in Chile (a mining strike) and Peru (floods) have also passed. According to Capital Economics, its GDP tracker for Latin America is now expanding at a three-year high of 3 per cent. Bring it on!

This return to growth is a blessed relief for the region. In 2015, Latin America’s $6tn economy registered no growth whatsoever. Last year, it shrank by 1 per cent. Yet the deceleration has in fact been going on far longer. Growth peaked in 2013 at 6 per cent. Since then, it has been a straight line downhill.

If it lasts, this return growth will have important political effects — especially in Argentina. For example, poverty rates there have now started to fall, as President Mauricio Macri’s economic policies start to benefit lower-income families. Sprouting “green shoots” may also take some of the rancour out of the Brazilian and Colombian presidential elections next year.

Sadly, though, that won’t be the case for all countries that have scheduled elections next year. In Mexico, abetted by the uncertainty of the... (Read More)