ECLAC warns of a new lost decade in Latin America

An uncertain international scenario with a combination of factors that includes the economic slowdown, inflation, financial volatility and lower capital flows, has slowed growth in Latin America and the Caribbean in 2022 and will further deepen this downward trend in 2023, paving the way for way for a new lost decade, the Economic Commission for Latin America and the Caribbean said Thursday.

In its new report “Preliminary Balance of the Economies of Latin America and the Caribbean”, ECLAC said that the region will grow 3.7% in 2022, almost half of the 6.7% registered in 2021; and only 1.3% next year.

If the prospects for next year materialize, it would be the second lost decade since the 1950s, with meager regional growth of 0.9% since 2014. In the so-called “debt crisis decade,” in the 80s, the economy advanced by 2%. That was so far the lowest performance since 1951.

“Here it is not about whether we are going to have a second lost decade. We are ending the second lost decade, Salazar said. “The question is if we are going to have a third, what is going to happen between now and 2030.”

“This is an extraordinary moment that requires extraordinary decisions” for countries to come out of the “numbness” of growth, said José Manuel Salazar-Xirinachs, Executive Secretary of ECLAC. “It’s very, very bad, but if you don’t do your homework, things could be even worse,” he warned.

The report was presented at a hybrid press conference that was held at the organization’s headquarters in Santiago, Chile, and was broadcast on the institution’s website and by videoconference.

When the region seemed to recover from the effects of the coronavirus pandemic, it had to face the impact of the Russian invasion of the Ukraine and then the tightening of international financial conditions. The effects of this unfavorable international context began to be reflected above all from the third quarter of 2022.

In 2020, amid the standstill caused by COVID-19, economic growth in Latin America fell back to record levels, below -6%, but a year later it recovered to 7%, as restrictions were eased of the pandemic.

ECLAC estimates are similar to those of the IMFwhich forecasts growth of around 3.4% for this year and 1.7% for 2023.

According to the ECLAC report, Haiti and Paraguay will be the only countries with economic recession in 2022, of -2% and -0.3% respectively. In 2023, the Haitian economy will contract by -0.7%, and Chile’s -it is expected to grow by 2.3% in 2022- will also enter a recession by reducing its activity by -1.1% next year. Paraguay, on the other hand, would grow by 4% in 2023.

Argentina will advance 4.9% this year but will slow down 1% next; Brazil 2.9% and 0.9% respectively, Colombia will go from 8% in 2022 to 1.5% in 2023; and Mexico from 2.9% to 1.1%.

Inflation from 6.5% in 2022 it could fall back to 4% in 2023, but it would still be far from pre-pandemic levels.

In its report, ECLAC highlights that the process of slow and uneven recovery of labor markets in the region continues. At the regional level, it estimates an unemployment rate of 7.3% for 2022, lower than the 10.3% in 2020 and the 7.9% in 2019. For 2023 it is expected to be 7.4%. Informality, meanwhile, is 48.1% this year, slightly below the 48.4% in 2019. For next year it would be 48.4%.

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