The economies of the region will continue this year and next mired in a trap of low capacity to grow, with growth rates that will remain low and with a growth dynamic that depends on private consumption, and less on investment. This is pointed out by the Preliminary Balance of the Economies of Latin America and the Caribbean 2024latest annual report (flagship) of ECLAC for the current period, released today by the United Nations agency.
According to the report of the Economic Commission for Latin America and the Caribbean (ECLAC), the projected growth rate for 2024 is 2.2% and 2.4% for 2025, with an average annual growth in the decade 2015-2024 of 1%, which implies a stagnation of GDP per capita during that period.
“To confront the trap of low capacity to grow, it is necessary, on the one hand, to increase the capacity of economies to mobilize financial resources effectively, in order to strengthen resilience against economic fluctuations and, on the other, to strengthen the capacity productive in the medium and long term, through the adoption of productive development policies aimed at increasing productivity, promoting investment in productive capital and generating quality employment,” said the Executive Secretary of the commission, José Manuel Salazar-Xirinachs, during the presentation of the report, which was carried out jointly with the Director of the Economic Development Division of ECLAC, Daniel Titelman.
In 2025 South America would grow 2.6%; Central America 2.9%; while in the Caribbean, excluding Guyana, it would grow 2.6%. In this context, the low pace of job creation, high informality and significant gender gaps in the region’s labor markets persist. In line with the low GDP growth, employment in the region also registers limited growth, of 1.7% in 2024, the lowest recorded in the period following the coronavirus disease (COVID-19) pandemic.
Regarding informal employment, the average informal employment rate in the region is expected to be 46.7%, which would mean a decrease of 0.4 percentage points compared to the rate registered in 2023. Despite Despite this slight reduction in informality, significant challenges persist in the region in terms of formalizing employment, which underlines the need to implement effective policies that promote safer and more stable working conditions.
On the other hand, after reaching a maximum in 2022, inflation in the economies of Latin America and the Caribbean has shown a downward trend. From the 8.2% recorded that year, median regional inflation decreased to 3.7% in December 2023. It is estimated that in 2024 inflation will continue to reduce to reach 3.4%. Although the median of regional inflation has approached the central value of the target range of many central banks (3.0%), the projected level for 2024 remains higher than the values recorded before the pandemic.
In the fiscal sphere, tax revenues would face difficulties in increasing in the short term, while public expenditures would remain stable in the face of a growing debt service burden. In this way, risks arise for fiscal sustainability, linked to weak GDP growth, high financing costs and exchange fluctuations.
According to the Preliminary Balance 2024among the main policies to confront the trap of low capacity for growth is the mobilization of financial resources. Internally, the strengthening of public finances is required. This implies concentrating efforts on increasing tax collection and increasing its progressivity, along with reducing levels of tax evasion and carrying out cost-benefit evaluations of current tax expenditures.
How to do it? ECLAC proposes to strengthen governance and the technical, operational, political and prospective capabilities (TOPP capabilities) of macroeconomic institutions.
The reform of the international financial architecture will also play a central role in enhancing the capacity for resource mobilization in the region. This requires greater regional coordination to influence global reforms that facilitate access to resources for development.
In the area of productive development policies (PDP), ECLAC has emphasized the need to implement “new generation” policies to promote a productive transformation, a necessary condition to escape the trap of low capacity for growth. Thus, the need to identify areas with high potential to boost growth has been highlighted, prioritizing environmental sustainability, promoting science, technology and innovation, digitalization, business financing and attracting investments. Likewise, the need to take advantage of global value chains to diversify economies has been emphasized.
The report reiterates that ECLAC has identified 14 driving or transforming sectors grouped into three categories: industry, services and key areas for sustainability. These sectors are a priority for the countries of Latin America and the Caribbean, since they have a high potential to boost growth and productivity.
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