Weekly Economic Briefings > Emerging Markets Weekly Economic Briefing

Our analysis of long-term potential output suggests that Chile, Colombia and Peru are best-placed to deliver the strongest catch-up stories in Latin America. On the other hand, we have downgraded our long-term outlook for Mexico on the back of lower potential growth in the US. As such, we now see the region's second largest economy stuck in a sort of middle-income trap.Meanwhile, Brazil and Argentina, the other two large economies in the region, are expected to catch up only very slowly with the more advanced economies in the coming two decades. Their inability to maintain a stable macro framework and to use the commodity-related revenues from the 'boom' years to boost their capital stock and total factor productivity (TFP) mean that these two countries have actually damaged their potential growth. Thus, although we forecast some catch up from current levels, their GDP per capita relative to that of the US will still be lower in 2036 than it was at their respective peaks of the early 2010s.Venezuela is in a league of its own. A prolonged period of disastrous economic policy has undermined the potential of both the oil and non-oil sectors. So much so that by 2036 it may be the poorest of the major Latin American countries, having been the richest nation in the region in the 1990s.Overall, our new estimates put Latin America's potential growth at 2.3% per year in 2017-26, which represents a marked slowdown from the 3.2% pace seen in 2005-14. Weaker growth from key trade partners, such as the US and Europe, and smaller gains from terms of trade will constrain TFP and capital accumulation in the coming decades. However, the key factor behind the slowdown in potential output in the long term will be demographics, as most LatAm countries will not be able to add as many workers to the labour force going forward as they did in the past two decades.