The Latin America and Caribbean region (LAC) seems to have turned the corner: after six years of slowdown, including two of recession, it is growing again. However, the years of economic stagnation have halted social progress, and the region needs to spur the economic recovery and find new engines of growth to reduce poverty and boost prosperity further.
The hardest-hit developing region during the global deceleration, LAC is expected to expand by 1.2% in 2017, followed by 2.1% in 2018. Argentina and Brazil are coming out of recession, Mexico will keep growing, and Central America and the Caribbean will grow faster. But the six years of slowdown had adverse effects on jobs and household incomes: inequality is no longer dropping, the growth of the middle class has slowed, and nearly 39% of Latin Americans remain vulnerable to falling back into poverty.
The region’s to-do list includes boosting investment, savings and exports and fostering private sector development. Countries need to address external and fiscal imbalances, strengthen regional economic integration to become more competitive globally, and avoid unduly sacrificing investment in the adjustment process. Current gaps in logistics and infrastructure are important obstacles for intra-regional trade; the average logistics costs are 3 to 4 times higher than OECD countries.
LAC can’t lose sight of the need to build resilience to shocks –economic, natural, or social, including crime and violence – and encourage greater transparency and accountability. Shifting from a procyclical to countercyclical policy framework is necessary to ensure sustainable and equitable long-term growth, and many countries in LAC already made the shift in the last decade.
However, growth alone won’t be enough to continue recent social gains and the reduction of LAC’s persistent inequality. To do so, LAC needs to invest in people, particularly the poor. LAC continues to underperform in education: around one out of every three youth doesn’t finish high school. Investment in education quality will play an important role in allowing the poor to contribute to and benefit from future economic growth.
Last Updated: Oct 13, 2017