Low Oil Prices Bring Mixed Fortunes for Latin American Economies

Falling oil prices may have hurt the economies of countries like Venezuela, but this has also helped several Latin American nations to balance their budgets and stimulate growth, says the Inter-American Development Bank (IDB).

Thanks to the sudden slump in oil prices, the IDB says as many as 11 countries across Central America and the Caribbean will likely boost their GDP by 1.5% this year. However, major economies such as Brazil and Mexico will see mild negative effects, while the likes of Bolivia, Trinidad and Tobago, Colombia, Venezuela and Ecuador will be harder hit.

Therefore, the bank says, Latin America as a whole cannot expect to grow more than 2% this year. This is for the fourth year in succession the regional economies are seeing their output decreasing.

In a report, released at its conference in South Korea, the IDB said the region would get back to 3% growth from 2016 onwards, although the continued slowdown in China, Japan and Europe is likely to remain a hurdle for a long time to come.

From 2011, metal prices have fallen 44%, food prices have declined 20% and oil has plunged 59%. While commodity prices are subject to volatility, the report does not foresee prices bouncing back to their previous highs anytime soon.

For nine commodity-dependent countries, the average decline in fiscal revenue is 9% in the baseline scenario, ranging from a 2% drop for Peru to over 10% for Trinidad and Tobago, Ecuador, and Venezuela. What is worrying regional governments is that the slowdown in growth has come amid rising inflation.

The IDB says countries that import oil and have strong trade ties with the United States will benefit strongly in the days to come. Low energy prices offer an opportunity to consider green taxes that also bring environmental benefits, the report noted.