SANTIAGO, Chile, CMC—The Economic Commission for Latin America and the Caribbean (ECLAC) projects the region’s growth rate to be two percent this year and 2.4 percent next year. ECLAC, in its “Preliminary Overview of the Economist of Latin America and the Caribbean,” is proposing a series of policies to help the region escape the trap of low growth capacity.
It warned that 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.
ECLAC said that the average annual growth for the LAC region during the 2015-2024 decade was one percent, which implies stagnation of gross domestic product (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, to strengthen resilience in the face of economic fluctuations, “said ECLAC’s Executive Secretary, José Manuel Salazar-Xirinachs.
He said these policies can be implemented 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.
According to the ECAC document, in 2025, South America will grow 2.6 percent, Central America 2.9 percent, and the Caribbean, without including Guyana, 2.6 percent.
“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. Because of this low GDP growth, employment in the region also shows limited growth of 1.7 percent in 2024, the lowest rate recorded following the coronavirus disease (COVID-19) pandemic,” ECLAC said.
It noted that regarding labor informality, the region’s average rate of informal employment is expected to stand at 46.7 percent, which would be a decline of 0.4 percentage points compared with the rate seen in 2023.
“Despite this slight reduction in informality, significant challenges remain in the region regarding formalizing employment, which underscores the need to implement effective policies that foster more secure and stable labor conditions.”
ECLAC said that inflation in the economies of Latin America and the Caribbean has been trending downward since peaking in 2022.
It said that from the 8.2 percent recorded that year, the median regional inflation rate declined to 3.7 percent in December 2023. It is estimated that in 2024, inflation will continue to ease, reaching 3.4 percent.
Although median regional inflation has gotten close to the central value in many central banks’ target ranges (three percent), 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 about 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 central 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 its progressivity, reducing tax evasion levels, and carrying out cost-benefit evaluations of existing tax expenditures.
ECLAC proposes strengthening macroeconomic institutions’ governance and technical, operational, political, and prospective capabilities (TOPP capabilities). Reforming the international financial architecture will also play a central role in boosting resource mobilization capacity in the region.
It said this requires greater regional coordination to impact global reforms that facilitate access to development resources.
In productive development policies (PDPs), ECLAC has stressed the need to implement “new-generation” policies to drive productive transformation, which is necessary to escape 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 also been emphasized.
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.
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