The economy of South America comprises approximately 434 million people living in twelve nations and three territories. It encompasses 6 percent of the world's population.
From the 1930s to 1980s, countries of 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 farther 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 onward countries in South America switched over to the system of Free-Market economy. Now, major economic activities include agriculture, industry, forestry, and mining.
In 2016, four countries, which include Brazil, Ecuador, Argentina and Venezuela experienced decline in output. Other countries in the region were observing slowdown in growth rates. Brazil saw this decline in output due to increasing unemployment level, worsening financial conditions and political issues, which, in turn, lead to decrease in private domestic consumption and investment. Argentina also experienced recession in private consumption and investment, however it was because of removal of public service subsidies due to short-term rise in inflation. In contrast, Peru differed from other countries in the region - demonstrating increase in growth rates thanks to copper production.
In 2017, the economy has started to recover for the first time since 2014. The main contributors to economic growth is private consumption. Increased retail trade and industrial production in Brazil has led to expansion of its economy by 1% in 2017. Higher public investments and private consumption have resulted in growth of economy of Argentina compared to its recession in 2016.
In 2017, inflation rates were observed to be in 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.
Economic sectors
Agriculture
Throughout history, since the colonial period, the export of natural resources has been a key factor for South America's economy. With a land that can be divided into four climatic regions (tropical, temperate, arid and cold), South America is a diverse land that is rich in natural resources. It has a wide variety of agricultural products, mineral wealth, plentiful freshwater and rich fisheries.
As one of the most important contributors of the world's agricultural market, South America accounts for approximately 10% of the global agricultural product export. The different climatic regions are home for diverse types of crops. In the tropical climatic regions, two of the most important cash crops are coffee and cacao. South America dominates the global market in coffee production, having Brazil as the world's largest exporter of coffee. A report from the Council of Brazilian Coffee Exporters showed that the coffee industry earned US$5.4 billion in 2016, with the exports of different coffee varieties exceeding 34 million 60 kg bags. This accounts to 6.4% of Brazil's total annual agrobusiness exports of US$84.9. The report showed that by December 2016, the Brazilian coffee industry generated US$557 million in revenue by exporting 3.07 million bags of coffee. Additionally, in 2016 soybeans, grown in South America's temperate climates, had an export value of US$19B for Brazil , representing 10.4% of the total exports, and one of US$3.23B for Argentina, representing 5.7% of the country's total exports. Moreover, the soybean meal exportation represent 17.5% of Argentina's total exports, with an export value of $9.96B.