Western Hemisphere
Latin America and the Caribbean
May 2013
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Growth in Latin America is set to pick up to about 3½ percent in 2013, broadly in line with potential. The region continues to benefit from favorable external financing conditions and relatively high commodity prices, but these tailwinds are unlikely to last forever. The key challenges for policymakers today are preserving macroeconomic and financial stability, and building strong foundations for sustained growth in the future. More prudent fiscal policy would help ease pressure on capacity constraints, mitigate the widening of current account deficits, and prepare the economies better to deal with adverse external shocks. Exchange rate flexibility and prudential measures should continue to be used to discourage speculative capital flows. Sustaining strong output growth will require structural reforms to raise productivity growth.
| Contents | ||
| Executive Summary | ||
| 1. The United States, Canada, and the World: Outlook and Policy Challenges | ||
| Global Backdrop: Receding Risks, Three-Speed Recovery | ||
| The United States: Modest Growth, Bright Spots Appearing | ||
| Canada: Moderating Growth Amid Currency Strength | ||
| 2. Outlook and Policy Challenges for Latin America and the Caribbean | ||
| Overview | ||
| Policy Challenges Financially Integrated Economies Other Commodity Exporters Central America, Panama, and the Dominican Republic The Caribbean |
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| 3. Is the Growth Momentum in Latin America Sustainable? | ||
| What Factors Drove the Recent Strong Growth Performance? | ||
| Is the Recent Strong Performance Sustainable? | ||
| Policy Implications | ||
| Annex 3.1. Data and Methodology | ||
| 4. Latin America’s Fiscal and External Strength: How Dependent Is It on External Conditions? | ||
| Introduction | ||
| A Decade of Falling Public and External Debt, 2003–12 | ||
| External Factors and Debt Sustainability | ||
| Conclusions | ||
| Annex 4.1. Global Variables under Alternative Scenarios | ||
| 5. Is Latin America Saving Its Terms-of-Trade Windfall? A Metric | ||
| Introduction | ||
| The Terms-of-Trade Windfall—a Historical Perspective | ||
| A Measure of Windfall Saving | ||
| Concluding Remarks | ||
| Annex 5.1 | ||
| References | ||
| New Publications from the Western Hemisphere Department | ||
| Boxes | ||
| 1.1 | U.S. Household Balance Sheets After Five Years of Repair | |
| 1.2 | Canadian and Mexican Exports to the United States: A Tale of Two Countries | |
| 2.1 | Taking Stock of European Banks’ Deleveraging in Latin America | |
| 2.2 | Foreign Ownership of Local Currency Securities and Exchange Rate Flexibility | |
| 2.3 | Sustaining Progress in Banking Regulation and Supervision in Latin America | |
| 2.4 | The Caribbean: In Search of Lost Competitiveness | |
| 4.1 | Optimal Sovereign Debt Levels: The Information in Sovereign Spreads | |
| Tables | ||
| 2.1 | Western Hemisphere: Main Economic Indicators | |
| 2.2 | Western Hemisphere: Main Fiscal Indicators | |
| 2.3 | Western Hemisphere: Selected Economic and Social Indicators | |
| 2.4 | Macroprudential (MaP) and Capital Flow Management (CFM) Measures in Latin America | |