Significant job growth has helped bring people back into employment and has reduced the unemployment rate. Employment growth above the rates needed to account for new entrants into the labour force has reduced unemployment to historically low levels, which has resulted in tight labour markets for fast-growing locations and occupations. Combined with significant wage gains, these trends have helped partially reverse the decline in real median household income since the recession. However, employment as a share of the population has still not completely recovered from the crisis. The latest data also reveals that material well-being is high, and US citizens are doing well on average. The US performs favourably in comparison to other OECD countries, particularly for measures of disposable income and household wealth, long-term unemployment and housing conditions. The near-term prospects are strong. Private consumption remains solid, strengthened by a strong labour market, wealth gains and high levels of consumer confidence. In the business sector, confidence is also robust, and business fixed investment is on the rise. Business investment will be further boosted by tax reforms, which will contribute to a substantial fiscal loosening. The projected pick-up of investment may support even stronger productivity growth going forward. On the other hand, there are some financial market threats, such as: elevated leverage ratios in the corporate sector, rising trade tensions, increases in government spending (in the longer term), as well as accompanying rising levels of debt. By comparison, growth in Mexico is projected to pick up to 2.75% by 2020. Low unemployment, strong remittances and the recovery of real wages will support household consumption. Investment, which has been persistently low, will strengthen on the back of announced public investment plans and increased confidence associated with the US-Mexico-Canada trade agreement. Export growth will decline owing to less favourable global conditions, particularly in the US, while inflation has been pushed up by rising energy prices, but expectations and core inflation remain anchored and within the central bank’s target band. Monetary policy is projected to ease slightly as inflation gradually moderates. Risks to inflation are considerable, due to energy prices and renewed peso depreciation pressures. Inflation expectations remain well anchored. According to the OECD, authorities would need to raise interest rates should these risks produce higher inflationary pressures. Maintenance of fiscal discipline is vital to keep the debt-to-GDP ratio on a declining path. However, social requirements may demand better targeting of expenditures and increasing currently low tax collection. Meanwhile, according to the World Bank, growth prospects for Latin America and the Caribbean’s final data for 2018 (not yet available at the time of going to print) are falling short of
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Global Awards 2019
initial expectations due to perceived challenges faced by some countries in the region, particularly South America. The LAC region is expected to grow 0.6% in 2018’s final figures, and 1.6% in 2019 – excluding Venezuela, which is forecast at 1.6% in 2018 and 2.1% in 2019. Reasons behind weaker growth in South America include market strife that began in Argentina in April, a growth slowdown in Brazil, and a turn for the worse in the external environment. The World Bank is supporting faster and more equitable growth in the region to bolster the profound social transformation seen during the first decade of the 21st century, when the commodity boom fuelled an expansion that helped cut poverty rates by half. Between 2003 and 2016, the share of the population living in extreme poverty in the region fell from 24.5% to 9.9%. Since then though, the pace of poverty reduction and growth of the middle class has stalled. The LAC region’s primary challenges include: boosting investment, promoting better savings and exports, as well as fostering private sector development. Countries need to address external and economic imbalances and strengthen regional fiscal integration to become more competitive internationally, and to avoid sacrificing investment unnecessarily during the adjustment process. Present gaps in logistics and infrastructure are important obstacles for intraregional trade – the average logistics costs are three to four times greater than OECD countries. Latin America and the Caribbean also remain exposed and vulnerable to earthquakes and floods that can ravage entire regions, and hurricanes that devastate Caribbean states. The region is especially vulnerable due to high population density in the areas where these disasters strike, and a need for better risk management practices. Increasingly though, there are means of understanding and managing these risks. Such examples – supported by the World Bank – include the Pacific Alliance catastrophe bonds for earthquakes. Moreover, risk sharing across countries through mechanisms such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) is equipped to provide funds for recovery after a member country suffers a natural disaster.