South America has often been overshadowed by her powerful neighbor to the north. However, some economies in South America, such as Brazil, have been touted in recent years as potential economic powerhouses in the future.
One thing that has driven the economies of Brazil and other South American countries is the high demand for commodities. With China growing rapidly, the demand for metal ore and other commodities was high, leading to an increase in the GDP of countries that could supply that demand. However, with China’s growth slowing, this bonanza seems to have come to an end. In 2014, the Latin American economy grew by less than 1.5%, a figure that was its lowest for a decade. It looks like 2015 will also be a poor year for the South American economies, which will trail behind the emerging markets of India and China.
The fall in the oil price has not been good for oil exporters. Venezuela is the seventh largest oil exporter in the world and a fall in oil prices will affect economic activity in the country. In Colombia and Peru, commodities account for two-thirds of the country’s exports. With commodity prices falling, their deficits could rise to 5% of GDP, a level that has not been seen since the 1990s. Argentina and Venezuela suffer from dwindling foreign reserves.
South America has attracted a lot of foreign investment, but most of this has been into the mining and energy industries. These investments could dry up with falling commodity prices. The region will need a new post-boom economy, especially if its local industries are affected by cheap Chinese imports.
High growth enabled Latin American countries to raise some of its people out of poverty, but with low economic growth, social progress has stalled, resulting in protest in some countries. This prompted some South American countries such as Brazil, Mexico and Colombia to introduce political and economic reforms to tackle poverty and corruption.
In contrast to the economies of South America, the emerging markets in Asia and Africa are continuing to grow strongly. China, Kenya, India, the Philippines and Indonesia are all projected to grow strongly over the next two years. Despite the recent slow-down in China’s economy, it will still post growth figures of which European countries can only dream. In Africa, Kenya and Nigeria will show strong growth.
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There have been some surprises in South America: in 2014, Colombia’s economy grew by 6.4% in the first quarter and there is also the thawing of relations between Cuba and America, which could provide more opportunities for Cuban businesses. In addition, there is some sign of growing domestic demand in Mexico, but the region needs to solve the problem of unleashing productivity and growth before it can post some more encouraging results.