In its last economic report of the year, the United Nations regional commission proposes a series of policies for the region to be able to escape the trap of low growth capacity in which it is caught.
This year and next, the region’s economies will stay mired in a trap of low capacity for growth, with growth rates that will remain low and a growth dynamic that depends more on private consumption, and less on investment. This is according to the Preliminary Overview of the Economies of Latin America and the Caribbean 2024, ECLAC’s last annual flagship report in the current year, released today by the United Nations organization.
According to this report by the Economic Commission for Latin America and the Caribbean (ECLAC), the growth rate projected for 2024 is 2.2% and for 2025, 2.4%, with average annual growth in the 2015-2024 decade of 1% – which implies stagnation of GDP per capita during that period.
“To tackle the trap of low capacity for growth, it is necessary to increase the ability of economies to mobilize financial resources effectively, with the aim of strengthening resilience in the face of economic fluctuations, while also strengthening productive capacity in the medium and long term, by adopting productive development policies geared towards increasing productivity, fostering investment in productive capital and creating quality employment,” the commission’s Executive Secretary, José Manuel Salazar-Xirinachs, indicated during the report’s presentation, which he made in conjunction with the Director of ECLAC’s Economic Development Division, Daniel Titelman.
In 2025, South America is seen growing 2.6%; Central America, 2.9%; and the Caribbean, without including Guyana, is seen expanding by 2.6%. In this context, the region’s labor markets continue to be marked by a low pace of job creation, high informality and significant gender gaps. In accordance with this low GDP growth, employment in the region also shows limited growth of 1.7% in 2024, which is the lowest rate recorded in the period following the coronavirus disease (COVID-19) pandemic.
With regard to labor informality, it is expected that the region’s average rate of informal employment will stand at 46.7%, which would point to a decline of 0.4 percentage points in comparison with the rate seen in 2023. Despite this slight reduction in informality, significant challenges remain in the region in terms of formalizing employment, which underscores the need to implement effective policies that would foster more secure and stable labor conditions.
On another note, inflation in the economies of Latin America and the Caribbean has shown a downward trend after peaking in 2022. From the 8.2% recorded that year, the median regional inflation rate declined to 3.7% in December 2023. It is estimated that in 2024, inflation will continue to ease, reaching 3.4%. Although median regional inflation has gotten close to the central value in many central banks’ target ranges (3.0%), the rate projected for 2024 continues to be above pre-pandemic levels.
In the fiscal sphere, difficulties will exist for increasing fiscal revenue in the short term, while public spending is seen holding steady with a growing debt service burden. Thus, risks arise with regard to fiscal sustainability, linked to weak GDP growth, the high cost of financing and exchange rate fluctuations.
According to the Preliminary Overview 2024, financial resource mobilization ranks among the main policies for tackling the trap of low growth capacity. On the domestic front, public finances must be strengthened. This entails focusing efforts on increasing tax collection and increasing its progressivity, along with reducing tax evasion levels and carrying out cost-benefit evaluations of existing tax expenditures.
How can this be done? ECLAC proposes strengthening the governance and the technical, operational, political and prospective capabilities (known as TOPP capabilities) of macroeconomic institutions.
Reforming the international financial architecture will also play a central role in boosting resource mobilization capacity in the region. This requires greater regional coordination to have an impact on global reforms that would facilitate access to resources for development.
In the realm of productive development policies (PDPs), ECLAC has stressed the need to implement “new generation” policies to drive a productive transformation, which is necessary for escaping the trap of low growth capacity. This, in turn, has highlighted the need to identify areas with high potential for invigorating growth, prioritizing environmental sustainability, the impetus for science, technology and innovation, digitalization, corporate financing and investment attraction. The need to take advantage of global value chains to diversify economies has been emphasized as well.
The report reiterates that ECLAC has identified 14 driving or transformative sectors, divided into three categories: industry, services and key areas for sustainability. These sectors are a priority for Latin American and Caribbean countries, since they have a high potential for invigorating growth and productivity. (https://www.cepal.org/en/pressreleases/latin-american-and-caribbean-economies-continue-low-growth-and-will-expand-22-2024-and)
