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 estimated to have grown by 1.1% in 2017 and is expected to grow by 1.8% in 2018 and 2.3% in 2019. The growth recovery has been mainly linked to the resumption in growth in the two largest South American economies, Brazil and Argentina. After a two-year contraction, Brazil is estimated to have grown by 1% in 2017. In turn, after contracting by 1.8 percent, Argentina’s economy is estimated to have grown by 2.9 percent in 2017 and is expected to keep growing at roughly the same pace in 2018 and 2019.
Mexico is estimated to have grown by 2%, while Central America is estimated to have continued to grow at a healthy pace of 3.9% in 2017. In contrast, growth in the Caribbean is estimated to have fallen to 2.5% in 2017, down from 3.1% in 2016, reflecting in great part the devastating effects of hurricanes María and Irma.
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.
Multiple shocks, including natural disasters, crime, violence, viruses and other infectious diseases, pose great challenges for the most vulnerable residents of LAC, particularly in the current context of low economic growth and rising deficits. Countries should prepare to collect more and better risk information, strengthen risk and disaster management policies, and develop credit and insurance markets that contribute to a faster recovery. 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: May 02, 2018