Latin America’s economy is still failing to recover, set to grow by only 1.8% in 2024

Latin America and the Caribbean have grown little in the last ten years, with an average rate of just 0.9% in the period 2015-2024 and with an estimate of only 1.8% for this yearaccording to the Economic Commission for the region (ECLAC).

In his report In its annual report on the regional economy, published on Tuesday, ECLAC defined stagnation as a “low growth trap” caused by a series of of internal and external factors of uncertainty and little room for fiscal and monetary policies.

Among these factors, the study highlights the poor investment performance and low labor productivityas well as geopolitical conflicts and potential disruptions to global supply chains, which could lead to a surge in commodity prices and global inflation.

The report’s disaggregated data indicate that this year’s low growth will affect all subregions: South America is expected to grow by 1.5%; Central America and Mexico by 2.2%; and the Caribbean (excluding Guyana) by 2.6%.

The outlook is not improving much. by 2025, when ECLAC forecasts a regional growth of 2.3%, led by South America, would reach 2.4%.

Policy mix to boost growth

ECLAC’s executive secretary stressed the need to boost growth so that the region can respond to the environmental, social and labour challenges it currently faces.

“Confronting the growth trap, increasing employment and creating more productive jobs requires strengthening policies of productive development that are complemented by policies macroeconomic, labor, and adaptation and mitigation to climate change”explained José Manuel Salazar-Xirinachs.

Implementing such policies would stimulate investment and productivity, thereby enabling inclusive and sustainable growth.

Weakening consumption

The report notes that the slowdown in economic activity reflects the weakening of both consumption and gross fixed capital formation, attributing the slowdown in consumption to deterioration in the purchasing power of real wages, the low level of job creationthe reduction in consumer confidence and the depletion of savings accumulated by families in recent years.

Regarding the slowdown in gross fixed capital formationpoints to restrictive monetary policies to control inflation, which have kept interest rates high, as the cause.

In addition, the geopolitical tensions and sharp fluctuations in world commodity prices have contributed to this low-growth outlook.

Falling employment rates and increasing informal employment

On the other hand, the study warns of the close relationship between growth and job creation at the aggregate and sectoral levels, which helps to understand the decline in employment over the last decade. Between 2014 and 2023, The average growth in the number of employees in the region was 1.3%, a third of that recorded in the 1970s. (3.9%).

Regarding employment growth, ECLAC says it is mainly due to: increase in informal workparticularly women, and points out that informality is concentrated in the lowest productivity sectors, such as construction, trade, transport, tourism and services, which together account for 74.4% of informal workers.

In this sense, the report identifies as one of the structural challenges of the region the creation of jobs in sectors that present greater increases in productivity. “To achieve this, it will be necessary to make great efforts aimed at Strengthening the capabilities of the workforce“, he adds.

Climate change

Regarding climate change, ECLAC recalls that Latin America and the Caribbean are very vulnerable to this phenomenon and warns that the worsening of extreme events would affect job creation.

It also notes that it is an area of ​​the world characterized by its high level of dependence on economic activities that could be affected by climate change, such as agriculture, mining and tourism.

“If adaptation and mitigation policies are not implemented, climate change can have very negative effects on economic growth and employment,” the document warns, and notes that if such policies are not incorporated, By 2050, 43 million jobs would have been lostor 10% of the workforce, 15 million of them in the agricultural and tourism sectors.

“Inaction [en la adaptación y mitigación del cambio climático] It can be very expensive, and it is a luxury that the region cannot afford.”, ECLAC stresses. “The implementation of adaptation and mitigation policies is essential to reduce the costs of this intensification [de los eventos extremos] would have on economic activity and employment in the region,” he points out.