Published in the Miami Herald (January 18th, 2019), “For Latin America and the Carribean, an Age of Anxiety” discusses the economic outlook for the Americas.
For Latin American and the Caribbean, an Age of Anxiety
by Jerry Haar
January 18th, 2019
In 1947, the famous British poet W.H. Auden penned “The Age of Anxiety”. This moniker is an apt description of the economic (not to mention psychosocial) environment in which we find ourselves today. The stock market tanks 600 points in one day then recovers by the same amount the next. Populist politicians make bizarre and absurd pronouncements that freak out the investment community, and consumers try to grapple with a merry go round of mixed signals and conflicting economic statistics.
The global economic outlook, in general, is not rosy, to say the least. Anemic growth in the U.S., Europe and Japan will be exacerbated by worsening trade terms, declining capital flows, illiberal protectionist policies and an appreciating dollar. The economic environment for Latin America and the Caribbean region in 2019 will be characterized by increasing uncertainty, medium-term risks, and a recovery characterized by ebbs and flows. Excluding Venezuela, GDP is projected at 2.3% vs. 3.7% for the world.
Four trends or factors will impact both the local and multinational business communities in the region in the new year:
- Interest rates and economic performance in industrialized nations. Taking a queue from the U.S. Federal Reserve, the European Central Bank, and other central banks, are expected to raise rates, although the percentage hikes and timing are uncertain. Such moves will increase business and consumer borrowing rates in an environment where trade and investment flows to the region from the U.S., Canada and Europe, in particular, have been slowing for the last few years.
- Falling demand from Asia for the region’s commodities. Despite healthy projected growth rates of China (6.2%) and India (7.3%), there will be declines in commodity purchases such as soybeans, corn, sugar, iron ore, and mineral fuels, as a result in slowing growth in the Asian region. Brazil, Argentina, Chile, Peru, Ecuador and Colombia will be impacted by this contraction.
- Domestic demand from lower/middle classes. The proliferation of credit, relatively low inflation rates, and major gains in poverty reduction in the region have catalyzed consumer purchasing at all income levels, especially the lower and lower-middle classes. Credit cards, e-commerce, and online lending by non-bank institutions have significantly fueled domestic demand for goods and services.
- Technology proliferation. Businesses of all sizes, national and multinational, will continue to harness technology—by necessity as much as choice—to improve efficiency and productivity, gather market information, enhance customer service, and expand their business. Artificial intelligence, blockchain, and a myriad of customized software are key features of this continuing technology wave where not only large providers such as Microsoft, Hewlett-Packard, and SAP service a wide range of industries, but small and medium-size firms and start-ups proliferate, as well.
Given this environment, the challenges that businesses will face in 2019 are numerous. These include greater competition from China, possible recessions in Europe and the U.S., and issues of intellectual property protection and data privacy, witness the recent Facebook debacle. For smaller firms and consumers, wider access to financing (especially for suppliers) is still daunting despite market improvements in financial access in recent years. Firms that are commodity producers will find the global business environment especially challenging. Finally, for firms of all sizes workforce availability and readiness are significant daunting hindrances. Latin America underperforms vis-à-vis nations with similar levels of GDP and education spending. The region spends more per capita than Asia but with poor results. Talent attraction and retention are no easy feats to say the least.
Despite the challenges elucidates above, microeconomics will trump macroeconomics in the new year. As previously mentioned, the growing demand in internal markets by both business and consumers, across a range of socioeconomic classes, means that a slow-down is not anywhere near a shutdown. Goods and services with that are heavily technology-based have a bright future, as technology is harnessed to boost productivity and accountability to both shareholders and customers. And with few exceptions (Venezuela, in particular) pro-market environments characterized by neoliberal economic policies will ensure a favorable playing field.
The current global environment may be described as one of volatile stability or stable volatility (witness the roller coaster performance of equity markets in recent weeks). This new age of anxiety we have entered will be with us through 2019. Astute investors, well-managed and agile firms, and savvy consumers should be able to successfully negotiate through the challenging times before us.
Jerry Haar is a professor in the College of Business at Florida International University as well as a Global Fellow of the Woodrow Wilson Center in Washington, D.C.