South American economies to face contraction, unemployment in 2015

Alicia Barcena, executive secretary, United Nation´s Economic Commission for Latin America and the Caribbean | i.ytimg.com

The United Nation´s Economic Commission for Latin America and the Caribbean projects that the South American economies will continue to weaken in 2015, a pattern that started four years ago but which will now begin to increase unemployment and lead to an average contraction, with a deep decline in the regional economic powerhouse of Brazil.

"The external context has had a much deeper impact in South America than in Mexico, Central America and the Caribbean,¨ said Alicia Barcena, executive secretary of the commission, during a press conference on Wednesday in Chile.

While the projection for the economic expansion of all Latin America and the Caribbean is for 0.5 percent growth on average, when taken apart by region, ¨the most worrisome issue is South America¨ with a 0.4 percent  contraction. The contraction projected for Brazil is for a negative 1.5 percent, which is only lower to that of Venezuela, where the economy is projected to shrink 5.5 percent.

Central America and Mexico will expand by 2.8 percent, and the Caribbean by 1.7 percent, according to the institute's figures.

Barcena said that while worldwide there will be improvements this year in some economies like that of the United States, Europe and Japan, other areas of the world that have a heavy impact in Latin America like China, are more unstable and growing slower than before. In addition, prices of commodities including crude oil, minerals and agricultural products, which the regions export, have dropped. At the same time, Latin American currencies are depreciating against the U.S. dollar.

¨The region faces an external context more complex both financially and comercially,¨ she said.

¨In the case of Brazil, there is a combination of several things because its exports portfolio is made up of hydrocarbons, minerals like iron and agricultural products. In Mexico, on the contrary, while they have an important crude oil export portfolio, they have manufacturing which compensates for this deterioration,¨ she added.

The external context also involves weaker flows of resources, an investment flight-to-quality and higher financial costs compared with the past two years. ¨This external context has hit South America a lot more than Central America, Mexico and the Caribbean,¨ she said.

¨We are very worried¨ about a sharp decline in the internal demand in South America which has worsened since 2013, she said.

¨There will definitely be an increase in the unemployment rate, ¨ she added.

Currency depreciation has caused a weakening of the Brazilian currency by nearly 30 percent, about 25 percent in the Colombian currency and 15 percent for the Uruguayan. At the same time, currencies of Guatemala, Costa Rica and Trinidad have appreciated against the U.S. dollar.

When asked for comment, an official at the Brazilian Financial and Capital Markets Association, known as Anbima for its Portuguese acronym, provided a document from his organization showing this institution anticipates a worst contraction for the Brazilian economy this year at a negative 1.9 percent.