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Economy of South America

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  • 5 chapters
The new financial center in the city of São Paulo, Brazil.
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South America has two major trade blocks: Mercosur and the Andean Community. Brazil is the largest economy in South America in terms of nominal GDP.

History

20th century

From the 1930s to the 1980s, countries in South America used import substitution, an economic policy that replaces foreign businesses as well as imports with domestic production. This was a policy made to increase domestic manufacturing. Furthermore, national spending on arms soared during periods of military rule. Increasingly, South American countries began to borrow from foreign private banks and international lending institutions, such as the World Bank and the Inter-American Development Bank, to fund existing programs while also trying to expand their economic productivity through investments. However, this policy created a debt crisis in South America.

The continent has fallen further behind North America over the past two centuries. This can be explained by South America's high concentration on primary commodities as well as the state of the educational system and institutional structure, some of which are still related to its colonial past, others to recent political developments.

From the 1990s on, countries in South America switched over to the free-market economy system. Now, major economic activities include agriculture, industry, forestry, and mining.

21st century

In 2016, four countries, which include Brazil, Ecuador, Argentina, and Venezuela, experienced a decline in output. Other countries in the region were observing a slowdown in growth rates. Brazil saw this decline in output due to increasing unemployment levels, worsening financial conditions, and political issues, which, in turn, led to a decrease in private domestic consumption and investment. Argentina also experienced a recession in private consumption and investment; however, it was because of the removal of public service subsidies due to a short-term rise in inflation. In contrast, Peru differed from other countries in the region, demonstrating an increase in growth rates thanks to copper production.

In 2017, the economy started to recover for the first time since 2014. The main contributor to economic growth is private consumption. Increased retail trade and industrial production in Brazil have led to an expansion of its economy by 1% in 2017. Higher public investments and private consumption have resulted in the growth of the economy of Argentina compared to its recession in 2016.

In 2017, inflation rates were observed to be on a downward trend in most of the major economies. The reasons are prior exchange rate appreciations and food price deflation. Some countries are even expected to lower their target bands in 2019.

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