THE Economic Commission for Latin America and the Caribbean (ECLAC) has revised downward its growth projections for the region’s economic activity, forecasting an average contraction of 0.6 per cent in Latin America and the Caribbean in 2016.This new estimate reflects that the contraction experienced by regional Gross Domestic Product (GDP) in 2015 (0.5 per cent) will extend to the current year.

The new projections are evidence of the difficult global scenario in which low growth continues in developed countries, there is a significant deceleration in emerging economies (China in particular), volatility and costs in financial markets are increasing, and there are low prices for commodities — especially hydrocarbons and minerals.

In addition, there is greater weakness in internal demand in the region’s countries, with the decline in domestic investment being accompanied by a deceleration of consumption.

As in 2015, during 2016, the growth dynamic shows marked differences between countries and sub-regions, ECLAC says. The economies of South America, which are specialised in the production of commodities, especially oil and minerals, and have a growing degree of trade integration with China — will record a contraction of -1.9 per cent.

Meanwhile, the growth rate for Central American economies is forecast at 3.9 per cent. This is below the figure registered in 2015 (4.3 per cent). If Central America and Mexico are taken together, projections for 2016 are 2.6 per cent, below the 2.9 per cent reached in 2015.

For the English- or Dutch-speaking Caribbean, estimated growth will be around 0.9 per cent in 2016.

This new scenario for the economies of northern Latin America and the Caribbean reflects a weaker-than-expected recovery in the United States, and shows the effects of fiscal policy adjustments that have been adopted in some economies of this sub-region, the organisation says.

According to ECLAC, ending this phase of deceleration and invigorating growth in the current situation entails a series of challenges for the region’s economies.

On the one hand, it is essential to stimulate investment and increase productivity to resume a path of sustained and sustainable growth in the long term.

Additionally, efforts should be made to protect the social gains achieved in recent years, and avoid rollbacks in the face of a lower economic growth scenario. In this context, the organisation indicates that countries need policies that sustain social and productive investment in the framework of smart fiscal adjustments.

ECLAC said it is necessary to attain sustainability in the region’s public finances with policies that take into account the impact on growth capacity in the long-term, as well as the social conditions of the region’s inhabitants.