The Inter-American Development Bank, IDB, published its macroeconomic perspectives for Latin America and the Caribbean where future growth opportunities are highlighted.
According to the report called “Ready to take off? Harnessing macroeconomic stability for growth”the region grew 2.1% in 2023, exceeding initial estimates of 1%, therefore, This growth is expected to slow to 1.6% in 2024 and then rebound to 2% in 2025.
The above, then “Latin American and Caribbean economies demonstrated unexpected strength in 2023 and may launch reforms to capitalize on economic opportunities still untapped, allowing the region to play a fundamental role in the global economic landscape,” the report reads.
Among the factors that Influencing growth expectations for 2024 are: lower global growth, high interest rates, stable commodity pricesgradual fiscal consolidation and relatively high debt levels.
“While the countries of Latin America and the Caribbean are prepared to contribute to global demand in critical sectors such as food security, renewable energy and climate change, They need to advance reforms to increase productivity, improve economic resilience and promote sustainable growth“said Eric Parrado, chief economist and general manager of the IDB research department.
The report recommends that countries: “improve access to quality education, encourage the formalization and growth of small businesses, facilitate access to global markets for all companiestake advantage of the reorganization and changes in global value chains to attract foreign direct investment flows and promote a more competitive credit market for the corporate sector.”
According to the report, the region's macroeconomic stabilization policies were carried out correctly after the Covid-19 crisis. For example, the timely and forceful increases in interest rates by central banks caused The average annual inflation of the region will fall 3.8% in December 2023. Primary fiscal deficits were balanced as spending generated by Covid-19 was reduced.
However, challenges remain on the fiscal and monetary fronts. After reaching a maximum of 9.8% in July 2022, interest rates have begun a downward path, although it may be difficult for them to do so quickly, as capital outflows could occur. This especially if “interest rates in the United States continue to be high and the depreciation of the exchange rate conspires against the decrease in inflation.”
For its part, Middle East conflicts could increase commodity price volatility.
In the face of fiscal adjustment efforts, “Countries in the region experienced an average decrease of 11 percentage points in the debt-to-GDP ratio between 2020 and 2023“However, according to the report, debt reduction slowed in 2023.
The reference scenario foresees an average reduction of 3% in the debt/GDP ratio of the countries, reaching 56% in 2026. In a scenario of intensifying shockspublic debt could reach an average of 62% in 2026.
The report also predicts that El Niño could lead to a 3% increase in debt as a percentage of GDP in three years compared to the reference scenario of 60%. “This forecast underlines the importance of integrating public investment in adaptation and mitigation into the climate change agenda as a complementary policy option for countries,” the document says.
Therefore, a rapid closing of fiscal gaps is recommended for the sake of sustainability. and as a complement to monetary policy.
