The Latin America and Caribbean region is on track to recovering previous levels of Growth Domestic Product (GDP) and employment. Schools are reopening and firms are hiring. However, the long-term scars of the pandemic remain and continue to require attention. The health crisis will have a long-term impact on the region's economies as it still faces major uncertainties such as the emergence of new variants of the virus, global inflation and the Russian invasion in Ukraine. In the midst of all this, the need to continue to lay the foundations for dynamic, inclusive and sustainable growth remains paramount, and increasingly urgent.
After a 6.9% rebound in 2021, regional Gross Domestic Product (GDP) is expected to grow by 2.3% in 2022 and a further 2.2% in 2023, with most countries reversing GDP losses from the pandemic crisis. However, these modest projections place regional performance among the lowest in the world. Moreover, regional growth projections have been revised downward by 0.4% following the Russian invasion of Ukraine.
The aftermath of the COVID-19 crisis will take years to fade if Latin American and Caribbean countries do not take immediate action to kick-start a slow recovery process, with poverty at its highest level in decades. Long-standing challenges in infrastructure, education, innovation and spending efficiency must be met with policy reforms that also address the effects of climate change and take advantage of the enormous opportunities for growth on the path to more sustainable economies.
The situation is not the same in all countries. For example, at 60%, vaccination is widespread throughout the region, increasing resistance against new variants. However, large differences remain, with some countries showing little progress. Evidenced by the devastating social costs of the pandemic. Poverty rates, excluding Brazil, measured at US$5.5/day, rose from 24 to 26.7%, their highest increase in decades.
As for employment, it increased to almost regain pre-pandemic levels by the end of 2021, after a 20% drop. But the share of formal employment has fallen by almost 5 percentage points. In fact, many of the new jobs, especially for women, are in small businesses that are often informal.
Opportunities can emerge in the industries sector following crises that trigger large-scale economic restructuring. For example, while the services sector has been hard hit, accelerating digitalization brought about by the need for physical distances could help boost sectors such as IT, finance and logistics, which in turn can improve market competitiveness and increase economic efficiency. However, if these structural factors are not addressed, weak and slow growth is likely to continue and be insufficient to make progress in the fight against poverty, and social tensions.
In education, students have already lost between one and one and a half years of education, which can amount to a loss of 10% of lifetime earnings. In the medium term, primary education will need to be restored to offset the lost years of learning, while addressing the persistent inefficiencies that have led to inadequate outcomes. Prioritizing the most affected schools, improving the use of technology to complement teaching, improving the monitoring and reporting of educational outcomes, and strengthening educational leadership would all contribute to this.
Although there are many reasons for pessimism, major crises also create key opportunities for large-scale economic restructuring. The largest transformation may result from the accelerated digitization brought on by the pandemic, which could invigorate several sectors. Digitalization could boost financial services, create job opportunities even for the unskilled, and support the formalization of employment.
Another great opportunity is green growth as Latin America and the Caribbean contributes only 8% of global GHG emissions and has huge "green comparative advantages" that offer opportunities for new industries and exports. In addition, the region has enormous potential in renewable electricity - solar, wind and geothermal - and vast natural capital - water, trees, biodiversity - that offers the potential for new industries.
The World Bank Group is taking broad, fast action to help developing countries strengthen their pandemic response such as by increasing disease surveillance, improving public health interventions, and supporting the private sector to sustain operations and jobs.
Latin America and the Caribbean are also exposed and vulnerable to disasters, from earthquakes to floods that can ravage entire regions, and hurricanes that devastate Caribbean states. The region is among the most vulnerable in the world because of the high population density in the areas where these disasters strike and the need for better risk management practices. Fortunately, we are getting better at understanding and managing these risks. Examples supported by the World Bank include the Pacific Alliance catastrophe bonds for earthquakes. Risk sharing across countries through mechanisms such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) can also provide readily available funds for recovery after a member country is hit by a disaster.
Last Updated: Apr 06, 2022