The highest-income economies in Latin America will have modest growth this year and next, with the exception of Argentina, because external demand remains weak, the Organization for Economic Cooperation and Development (OECD) said on Thursday.
The organization, which is based in Paris, said in its semiannual outlook report for the region that, on average, the main seven Latin American economies will grow 1.4% this year and 2.4% in 2025, a slowdown after of the 1.9% advance in 2023.
“In 2025, the outlook for the region has a more positive tone, associated with greater growth in external demand, and lower inflation, already within the target ranges of central banks,” the OECD said in the report.
But economic risks remain skewed to the downside, as “global geopolitical tensions and volatility in global financial markets could have a negative impact on the region,” he warned.
The climate disasters They could also affect activity, by impacting agricultural production in a key region for grain supplies and altering the prices of raw materials that are exported, he indicated.
The report highlighted the risks associated with high levels of public debt and structural deficits that must decrease in the coming years to generate greater fiscal space, to which is added the need to increase investment to take advantage of growth opportunities.
In this sense, the OECD considers that Latin American nations will have to invest 1.5 percentage points of GDP each year until 2030 in order to achieve the goal of net zero emissions by 2050.
And the advantages associated with the energy transition will be crucial in this regard, the agency said, since the region is well positioned to exploit climate change mitigation pathways.
“Latin America is ahead in the energy transition process worldwide because it is a leader in the use of renewable energy. Another advantage it has is the abundance of minerals such as lithium, copper and silver,” said Aida Caldera, head of the economics division of the OECD, at a press conference.
The report added that Brazil, Chile and Colombia could become key exporters of green hydrogen in the coming years.
Cautious outlook
In the breakdown of projections, Costa Rica leads growth with an expected advance of 3.6% for this year, while Peru and Chile will both expand by 2.3% in 2024, with prospects of another rebound for next year thanks to an expected recovery in wages that will raise the consumption and a relaxation of monetary policy.
For the most important economies, the agency expects a slowdown in Brazil to 1.9% from the 2.9% expansion last year and a slowdown in Mexico to 2.2% in 2024 from the 3.2% growth. from 2023.
In Brazil, the region’s largest economy, the OECD believes that household spending will be the key driver of growth, encouraged by a robust labor market; a scenario similar to that of Mexico, where the strength of employment will sustain domestic demand.
The outlook for Colombia also offers some optimism, with a partial rebound in investment projected as financial conditions improve, although inflation has continued at high levels despite its downward trajectory.
The report draws attention to the situation in Argentina, where it expects the economy to contract by 3.3% this year due to the impact of hyperinflation and the severe fiscal adjustments that it considers “necessary”, but that hamper consumption. By 2025, the OECD estimates a GDP recovery to 2.7%.
“The announced fiscal consolidation should continue,” said the report on the Argentine economy. “Together with the end of monetary financing and the strengthening of the central bank’s balance sheet, such consolidation will restore macroeconomic stability,” he added.
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