Latin America and the Caribbean is winning the war on inflation but its economy will only grow this year 1.9 percent, a little more than expected but less than the other regions of the world, the World Bank reported Wednesday.
The financial organization predicted in April that the regional economy would expand by 1.6 percent by 2024.
This year Brazil will grow 2.8 %, Bolivia 1.4 %, Chile 2.5 %, Colombia 1.5 %, Costa Rica 4 %, Dominican Republic 5.1 %, Ecuador 0.3 %, El Salvador 2.9 %, Guatemala 3.7 %, Honduras 3.5 %, Mexico 1.7 %, Nicaragua 3.6 %, Panama 2.4 %, Paraguay 3.9 %, Peru 3.1 % and Uruguay 3.2 %.
Argentina’s economy will contract 3.5 per cent but will rebound next year to 5 per cent, estimates the World Bank (WB) over the South American country, embroiled in a deep recession, with one of the highest inflations in the world (263,7 % year-on-year in August) and half of the population in poverty.
The poorest country in the region, Haiti, plunged into a gang war, will suffer an economic contraction of 4.2 percent this year but will begin to raise its head in 2025 with an expected growth of 0.5 percent.
The World Bank does not provide data on Venezuela.
According to its forecasts, at the regional level growth will be weak in 2024 (1.9 per cent) and 2025 (2.6 per cent).
They are basically the levels of the 2010s and “it is not enough to reduce poverty or facilitate social mobility,” William Maloney, chief economist at the WB for Latin America and the Caribbean, said at a press conference.
The US Federal Reserve’s lower interest rates is a balm for the regional economy.
Inflation
To leave behind the low-growth cycle, the region must take advantage of this “key moment” and “attract the investments necessary for sustainable development, promote innovation, build human capital, create more and better jobs,” says Carlos Felipe Jaramillo, vice president of the WB for the region, quoted in a statement.
Latin America and the Caribbean “is close to winning the battle against inflation and turning the page on the macroeconomic problems caused by the pandemic,” reads the report published Wednesday.
Brazil and Peru are on track to meet their inflation targets by 2024, and other major economies are expected to follow in their footsteps.
“In August, Latin America stood at 4.2 per cent annualised (inflation), below the 4.4 July forecast and (…) it has surpassed the OECD, and that is due to the rapid measures taken early by Brazil, Chile, Mexico, which reflect what I would consider to be a greater professionalization of central banks,” Maloney explained.
But “energy and food costs remain high,” he said.
Food insecurity and obesity
Poverty is below 2019 levels and inequality has fallen slightly, “not considerably, but in the right direction,” Maloney says.
For the WB, poverty has “a new dimension” to be monitored: food insecurity and obesity.
Obesity levels are “pretty high in the region” and the long-term cost “is about 5 percent of GDP,” Maloney says, in reference to a problem that is explained by poor nutrition.
The report also highlights persistent challenges such as correcting fiscal imbalances and reducing debt.
The debt-to-GDP ratio rose to 62.8 per cent in 2024 in the region, compared with 59.1 per cent in 2019, and high indebtedness and debt services continue to prevent the creation of the fiscal space needed for public spending.
Foreign direct investment (FDI) is at lower levels than 13 years ago.
Despite having competitive wages compared to countries such as China, “high capital costs, weak education systems, poor energy and infrastructure and social instability reduce the attractiveness of the region,” the organization says.
So Latin America could be losing the nearshoring train (offshoring of services to an area close to consumer markets) and the friendshoring (supm in ideologically like-minded countries).
In 2022 there was a big leap in this section mainly due to investment in Brazil, but then it has stabilized and there has been no significant increase in nearshoring in 2023, Maloney said.
This article has been translated after first appearing in Diario El Mundo