Just over a year ago, in July 2018, the International Monetary Fund forecast that GDP growth in Latin America and the Caribbean would accelerate to 2.6% after years of stagnation or contraction.
But the IMF repeatedly has shrunk that estimate in the 12 months since — down to 2.2% in October 2018, 2.0% in January and 1.4% in April. The most severe revision came last month, when it slashed its estimate to a mere 0.6%, even lower than the subdued growth rates seen in the prior two years.
Many others — economists and governments alike — have made similar revisions in recent months.
"We have systemically had bad news which each time have led to lower projections," Guillermo Tolosa, an economic adviser at Oxford Economics, said in a telephone interview.
The disappointing GDP growth has been relatively widespread in Latin America. In a recent report, Oxford Economics noted that six of the region's biggest economies — Brazil, Mexico, Argentina, Colombia, Chile and Peru — all either contracted or stagnated during the first quarter.
"We think these are ominous signs of economic weakness, not seen in the region since the global financial crisis," it wrote.
Latin America's declining growth prospects have come amid dampened growth estimates around the globe. The IMF lowered its global GDP growth estimate for 2019 to 3.2% from 3.9% a year ago, with its estimate for emerging market and developing economies dwindling to 4.1% from 5.1%.
An ongoing trade dispute between the U.S. and China is partly to blame, impacting economies in some Latin American countries such as Chile, Peru and Colombia, Diego Martínez Burzaco, head of strategy at MB Inversiones, said. However, Latin America's main issues are political. He pointed specifically to new governments in both Brazil and Mexico, which together account for more than half the region's total GDP.
"The internal political process has had a negative impact," Martínez Burzaco said.
Oxford Economics' Tolosa also pointed to the policy impact of the region's two largest economies.
"The key factor is how Brazil and Mexico drag the region down. These two have been at the center of the negative surprise in terms of growth. The common factor there is regime change," Tolosa said. "Exports to China have not contributed significantly to the fall. Neither have commodity prices. This can't be the explanation for such a significant markdown of growth."
In Mexico, economic expectations have rapidly declined since the start of the year. The government had been forecasting 2.0% GDP growth for this year; after narrowly avoiding a technical recession in the first half of the year, it now sees growth at just 1.1%. Others are even less optimistic: the IMF's forecast stands at just 0.9%, while Banco de México's private-sector survey projects 0.79% growth.
Jorge Sánchez Tello, an economist at research firm Fundef, placed the blame squarely on uncertainty generated under President Andrés Manuel López Obrador, who took office in late 2018.
"The new government has generated uncertainty in private investment ... its public and economic policies simply [are] not convincing," he said. Sánchez Tello pointed specifically to the government's rescue plans for debt-plagued oil company Pemex, as well as the abrupt exit of Finance Minister Carlos Urzúa as having shaken confidence.
As result, "it is the first time in 25 years that we have low growth at the same the U.S. is growing more," he said.
In Brazil, meanwhile, hopes for a significant rebound driven by market-friendly promises of President Jair Bolsonaro appear to have evaporated in recent months. Economic growth in the country has disappointed, and the government's reform agenda has struggled through the legislative process. The country's finance ministry in July halved its full-year GDP growth forecast to 0.8% from 1.6%, in line with the IMF's latest projection.
The continued political uncertainty and the economic disappointment "has diminished the optimism among market participants that we saw at the beginning of the year, and now investors are more cautious about Brazil's prospects," S&P Global Ratings wrote in a recent report.
Looking to 2020
While the hope of more robust economic growth in Latin America has faded for 2019, many are still relatively optimistic for next year. Brazil is expected to benefit from the expected passage of pension reform, while some believe Mexico's new president will be able to find his footing in the coming months.
"There is always a slowdown during the first year of every administration" in Mexico, Grupo Financiero Banorte SAB de CV CEO Marcos Ramirez said during a recent conference call. "As with every political cycle, we are pretty sure that confidence will be restored."
The IMF sees the region's GDP accelerating to a 2.3% rate in 2020, with 2.4% growth in Brazil and 1.9% growth in Mexico. Oxford Economics also has the region's growth at 2.3% next year.
"In 2020, we expect that lower U.S. rates, a truce in the U.S.-China trade conflict and some policy easing will allow LatAm growth to improve to a less mediocre 2.3% pace," Oxford Economics wrote.