Forecast: Sustained Low Economic Growth in Latin America and the Caribbean through 2024, Reveals New Report

The Economic Commission for Latin America and the Caribbean (ECLAC) has recently released its annual report titled “Economic Survey of Latin America and the Caribbean 2023. Financing a sustainable transition: investment for growth and climate change action.” The report predicts that the region’s economies will experience low levels of growth in 2023 and 2024 due to the negative global and regional economic outlook.

According to José Manuel Salazar-Xirinachs, ECLAC’s executive secretary, the low growth in Latin America and the Caribbean could be exacerbated by the negative impacts of climate shocks if countries fail to invest in climate change adaptation and mitigation.

The report, which has been published since 1948, projects a regional average GDP growth rate of 1.7% for 2023 and a slight decrease for 2024 with a growth rate of only 1.5%. ECLAC highlights that the world economy is currently experiencing low economic growth and global trade, implying that developed countries are likely to continue with their monetary contraction policies despite the decline in inflation rates.

ECLAC states that high financing costs for the region will persist as a significant drop in external interest rates is not expected in the near future. Additionally, the region’s countries still have elevated levels of public debt compared to their GDP, limiting fiscal space for the region as a whole. The report also anticipates a decrease in job creation and growing social demands.

The projections made by ECLAC for 2023 indicate lower growth rates compared to 2022 for all subregions. South America is expected to grow by 1.2%, the group consisting of Central America and Mexico by 3.0%, and the Caribbean (excluding Guyana) by 4.2%. In 2024, the region’s low economic dynamism is anticipated to continue, with ECLAC forecasting average growth rates of 1.2% for South America, 2.1% for Central America and Mexico, and 2.8% for the Caribbean (excluding Guyana).

Furthermore, the 2023 Economic Study suggests that the low growth in economic activity will lead to a slowdown in employment development. The report raises concerns about the quality of employment in this context, as workers are likely to become more vulnerable with lower levels of social protection and employment in less productive sectors.

To address these challenges and promote growth while tackling climate change, ECLAC emphasizes the need to enhance public and private investment. The report points out that public investment in the region is relatively low compared to advanced economies and even other developing regions, resulting in an insufficient stock of public capital for economic growth and productive development.

The study also addresses the macroeconomic impacts of climate change in the region. The estimates indicate that by 2050, the GDP of a group of six countries could be 9% to 12% less than what is expected in a scenario of trend growth if investments are not made to mitigate weather shocks. The report highlights the need for a significant increase in investment, ranging from 5.3% to 10.9% of GDP per year, which would represent a substantial increase compared to current levels.

Finally, the report calls upon the governments of these countries to increase efforts in four main scenarios. These include expanding fiscal space through increased revenue and progressivity of the tax structure, managing financial and foreign-exchange risks through macroprudential policies, mobilizing concessional financing and development banking for climate finance, and implementing debt relief mechanisms linked to climate targets.

“There must be a considerable increase in concessional financing that would allow for sustaining investment trajectories over time. These efforts must be accompanied by domestic macroeconomic policies that favor resource mobilization,” added Salazar-Xirinachs.