Mexico's president is none too pleased with the International Monetary Fund (IMF).
Andres Manuel Lopez Obrador was dumbfounded on Tuesday when the global financial institution downgraded Mexico's economic growth forecast for 2019 to 0.9 percent, citing weak investment and slowing private consumption.
Like many left-wingers, he is distrustful of current IMF policies and is not alone in his disdain for the use of gross domestic product (GDP) as a measurement of development and economic well-being.
But that's the current tool of the IMF which has cut the growth rate forecast not only for Mexico but also Brazil, Latin America's two largest economies, casting a pall over the entire region for the rest of the year.
Latin America as a whole is expected to see lower growth of just 0.6 percent, a drop from the 1.4 percent expected only in April and the original 2 percent at the start of the year.
Deep recession
It all seems so familiar. Latin America has been lagging behind other areas of the world with figures showing that it is now contributing just 12 percent of the growth of emerging economies compared to roughly a third three decades ago.
Andres Manuel Lopez Obrador gestures during his inauguration as president of Mexico at Congress, in Mexico City, Mexico, December 1, 2018. /VCG Photo
Colombia is the only one among its five largest economies that has been growing faster than 2 percent per year. Of the others in the top five, Argentina is undergoing a deep recession and Venezuela is in dire political and economic straits.
"Peru and Colombia are more resilient compared to the larger economies in the region," Gian Maria Milesi-Ferretti, the deputy director of the IMF's research department, told a news conference on Monday, referring to the area's bright spots.
The short-term outlook for Latin America is therefore not positive. Investor confidence appears to be waning in both Brazil and Mexico, whose governments are at the opposite ends of the ideological spectrum.
In Brazil, right-wing President Jair Bolsonaro doesn't seem to be making much headway in his economic reform agenda, with investment standing still, and political hurdles standing in his path. Lopez Obrador was never likely to find favor with the business sector, and that has proven to be the case.
Commodities boom
However, he remains defiant, scoffing at the IMF prediction and sticking to his estimate of 2 percent growth in 2019.
Brazil's projection was cut even more sharply than Mexico's, from 2.1 percent in April to 0.8 percent.
A view of the opening of the 37th session of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) in Havana, Cuba, May 8, 2018. /VCG Photo
After a spurt of sorts early this decade on the back of commodities, the economic outlook in Latin America has deteriorated, and the region seems back to square one.
"GDP figures have been pretty woeful across the region," William Jackson, chief emerging markets economist at Capital Economics in London told the Financial Times last month. "What they have in common is a struggle to adjust to the post-boom years and to low commodity prices."
The situation hasn't been helped recently by the uncertain global climate – trade conflicts, Brexit, the unpredictability in American policies generally, slowing of China's rapid growth and the risk of rising protectionism.
'Lost decade'
One reason for Latin America's laggardness cited by researchers at the McKinsey Global Institute is what they call "the missing middle" – a shortage of medium-sized firms as well as middle-class consumers who can help to drive demand and spur investment.
Some economists have criticized governments for failing to restructure their economies and exercise fiscal discipline while the going was reasonably good. "Latin America is on the verge of suffering another lost decade," a Bloomberg article said solemnly in May.
To achieve faster growth, Latin America needs to boost the production of tradable goods and services, particularly by putting a premium on building up and diversifying its export base with an eye towards global markets, said a June paper by Augusto de la Torre and Alain Ize of the World Bank.
Clearly, lessons need to be learned, and the best advice heeded. "Otherwise," in the words of the Economist, "Latin America risks being trapped in a vicious circle of economic stagnation and social and political conflict."0
(Cover image: The iconic Christ the Redeemer statue in Rio de Janeiro, Brazil. /VCG Photo