SANTIAGO, Chile, CMC – The Economic Commission for Latin America and the Caribbean (ECLAC) Tuesday predicted that the region's economies will maintain low levels of growth this year and next year, affected by a negative global and very complex regional economic outlook.
In its annual report, ECLAC said that regional countries will continue to face an economic scenario of low growth. It is expected that regional gross domestic product (GDP) will grow 1.5 per cent in 2024, slightly below the 1.7 per cent estimated for the current year.
The report titled 'Economic Survey of Latin America and the Caribbean 2023: Financing a sustainable transition: Investment for growth and climate change action' notes that a slight decline is projected in the growth rate for 2024, leading to an increase of 1.5 per cent of the regional GDP growth.
According to the United Nations regional organisation, the global economy's dynamics remain on a path of low economic and international trade growth. Despite declines in the inflation rate, developed countries will likely continue with their contractive monetary policies, which means no significant cut to external interest rates is expected this year and financing costs for our countries will remain high.
Although the public debt of the region's countries has fallen, it is still elevated as a proportion of GDP, which, coupled with the increase in external and internal interest rates and an expected decline in tax revenue due to lower growth, will result in limited fiscal space for the region as a whole. In addition, less dynamism in job creation is anticipated, along with growing social demands.
"Latin America and the Caribbean's low growth may be aggravated by the negative effects of an intensification of climate shocks if the investments that countries need in climate change adaptation and mitigation are not made," stated ECLAC's Executive Secretary José Manuel Salazar-Xirinachs.
In 2023, ECLAC forecasts that all the subregions will have lower growth than in 2022. South America is seen growing by 1.2 per cent as against 3.7 per cent last year; the group made up of Central America and Mexico by three per cent as compared with 3.4 per cent in 2022, and the Caribbean, excluding Guyana, by 4.2 per cent as compared with 6.3 per cent last year.
The projections for 2024 indicate that low economic dynamism will persist in the region. It is forecast that the international context will continue to be unfavourable, with growth in global GDP and trade far below the historical averages.
ECLAC forecasts that at the same time, in the domestic arena, fiscal policy space will continue to be limited, although reduced inflation in the region creates more room for countries' monetary policies.
In these circumstances, ECLAC predicts average growth in 2024 of 1.2 per cent for South America, 2.1 per cent for Central America and Mexico, and 2.8 per cent for the Caribbean, excluding Guyana.
The Economic Survey 2023 indicates that the low growth in economic activity in 2023 and 2024 will result in a deceleration of job growth, which is seen expanding by 1.9 per cent in 2023 and 1.1 per cent in 2024.
Furthermore, there are concerns over employment quality in this context of low growth, since it is very likely that workers will become more vulnerable, have lower levels of social protection, and be employed in less productive sectors.
"Given the challenges of boosting growth and tackling climate change, it is essential to enhance public and private investment. Public investment in the region is low in comparison with advanced economies, and even other developing regions.
"This low level of investment has translated into a stock of public capital – infrastructure – that is insufficient for boosting economic growth and promoting productive development," ECLAC's report emphasises.
The macroeconomic impact of climate change could be very significant for the region's countries. The estimates presented in the Economic Survey of Latin America and the Caribbean 2023 indicate that by 2050 the GDP of a group of six countries could be between nine and 12 per cent lower than that which would correspond to a scenario of trend growth if investments are not made to offset climate shocks.
The volume of additional investment needed is exceptionally large, between 5.3 per cent and 10.9 per cent of GDP per year. This would represent a significant increase from current investment levels.
However, the ability to invest will depend both on access to financing as well as the cost of financing.
"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 favour resource mobilisation," said Salazar-Xirinachs.
The report also warns that in order to confront the macroeconomic effects of climate change, national, regional, and global efforts will be needed in four main areas.
These are fiscal space, through an increase in revenue and in the progressivity of the tax structure, green public spending, and access to new financing mechanisms, such as thematic bonds; management of financial and foreign exchange risks through macroprudential policy; mobilisation of concessional financing and development banking to deepen climate finance, through multilateral, regional, and national development banks; and to foster official development assistance (ODA) flows to fight climate change.
It also said debt relief mechanisms, such as the establishment of institutional mechanisms for restructuring and the inclusion of clauses linked to disasters and hurricanes, and achievement of climate targets.