The World Bank on Oct. 5 lowered its 2018 economic growth forecast for Latin America to 0.6% from its previous estimate of 1.7%, mainly due to volatility in the major South American economies of Brazil and Argentina, as well the continuing crisis in Venezuela.
In its semiannual outlook report, the World Bank also said it now expects the region's economy to expand by 1.6% in 2019, down from its previous forecast of 2.3%.
"This reduction in growth will be mainly due to growth in South America coming to a screeching halt in 2018," the World Bank wrote. It expects a 0.1% economic decline in South America this year, and 1.2% growth in 2019.
The region's economic prospects were weighed down by Argentina's macroeconomic crisis that began in April, Brazil's growth slowdown, and the lingering deterioration of the economic and social spheres in Venezuela.
For 2018, the World Bank expects Argentina and Venezuela's economies to contract 2.5% and 18.2% respectively. In Brazil — Latin America's largest economy — GDP growth is only seen hitting 1.2% this year, the international financial body said.
In addition, a worsening external environment is exacerbating the region's dimmer economic outlook, the World Bank said. The normalization of the monetary policy in the U.S. has taken a toll on capital inflows to the region and has spurred weakness in most major emerging market currencies. On the other hand, strong growth in China and the U.S. as well as a recovery in commodity prices, have provided some relief for the region.
Still, the World Bank identified the overall situation in the region as "worrisome," given significant political uncertainty in Brazil amid a polarizing presidential election, a deeper-than-expected recession in Argentina, concerns on the sustainability of key reforms in Mexico, as well as ongoing discussion of the North American Free Trade Agreement. The institution also flagged the region's fiscal situation, which it noted has barely improved since last year.
On the other hand, the World Bank expects the Central American and Caribbean regions to post more robust growth of 2.8% and 3.7%, respectively, this year, although prospects in Central America could be impacted by political and economic risks in Nicaragua. Mexico's economy, meanwhile, is expected to grow 2.3% in 2018 and 2019.