Economic Overview
South America is a rapidly developing economy with many industries and a prospering trade and import-export market. South America is comprised of about 382 million people living in twelve nations and three territories, contributing 6% of the world’s population.
A region once dependent on an Import Substitution economy is now a strong member of the global economy with a US $3.99 trillion GDP in 2010. The biggest individual economies in South America ranked by nominal GDP are Brazil, Argentina, Columbia, Peru, Chile, Venezuela, Ecuador, Bolivia, and Uruguay. Currently, the economies of Brazil, Argentina, Columbia, and Chile are experiencing the greatest economic growth. As South America’s economy is rapidly growing and changing, it will be worthwhile to keep up with the market trends of the region.
From the 1930s to the 1980s, the region used Import Substitution, an economic policy that replaces all foreign business and imports with purely domestic production. The goal of Import Substitution was to increase local business and help grow domestic business while not competing with other international industries. The policy backfired as a debt crisis arose in South America. In the 1990s countries in South America switched to Free-Market economy, opening up international market trade. This switch pulled South America out of the debt crisis to where it is today.
According to the World Economic Forum Global Competitiveness Report, South America will need to apply further structural reforms and strengthen investment in skills development, infrastructure, and innovation in order to maintain the current positive economic movement. Although the report finds that productivity in South America remains relatively low, there are several country-specific high points that help maintain a positive outlook on the respective region’s marketplace.
Chile is the most competitive economy in South America per capita, with low levels of corruption and an efficient government. Chile remains relatively stable due to its solid macroeconomic stability and low public debt. Chile’s economy is flourishing due to its natural resource industries. However, the decline in the price of minerals has the potential to negatively affect the economy, increasing the need for Chile to diversify its economy. All in all, Chile’s economy accelerated in the first quarter of 2015, keeping consumer confidence intact.
Although Brazil and Venezuela have been areas of large economic growth, the trends seem to be reversing. Current 2015 reports show an increase in Brazil’s decline, and a drastic economic plunge in Venezuela may contribute to the concerns about South America’s economy. Data showed that Brazil’s GDP decreased by 1.6% in the first quarter of the year, and it is expected (although data has not been released since late 2014) that Venezuela’s GDP has plummeted by 7%.
The decline in these countries hit South America’s growth; however, there was actually a 0.1% increase in the region’s GDP in the first quarter of 2015, mainly due to expansion in Argentina (1.1%).
At this time, South America’s economy will need to be watched closely. Heading into the second half of 2015, many major South American currencies weakened. Many believe the hike in interest rates, coupled with weaker national currencies, will affect on import in the near future. However, weaker currencies will likely boost export, keeping the economy alive. Entering the South American market may be beneficial if investors keep a close eye on market trends in the next few years.
