By: Staff Writer
March 15, 2024
An Inter-American Development Bank report said that Latin America and the Caribbean’s (LAC) growth will slow down in 2024 despite the better than expected success of 2023.
The report, “Ready for Takeoff? Building on Macroeconomic Stability for Growth,” said that global growth was a “key driver” for LAC economies in 2023. However, “As inflationary pressures ease globally and interest rates begin to decrease, countries in the region are well-positioned to consolidate their fiscal accounts. Primary balance gaps have been closed on average; now, overall balance gaps must follow suit. The combination of stronger fiscal positions, robust financial regulation and supervision, and the reaffirmed strength of central banks paints an optimistic picture of the region’s macroeconomic stability. The region has reached a possible inflection point if it enacts reforms and seizes opportunities in this favorable context.”
The report also said: “The region faces a pressing productivity challenge with long-run growth hovering around 2 percent. This rate is insufficient to meet the rising demands of Latin America and the Caribbean’s growing population. Bridging this gap requires urgent efforts to enhance productivity growth and improve human capital, areas where the region lags other emerging economies. Addressing these issues requires comprehensive reforms designed to mitigate various risks and foster a secure environment for long-term private investment.”
It also noted: “Looking ahead to 2024, as global economic growth is projected to ease, the region’s growth will likely decelerate. As of December 2023, market analysts predicted 1.6 percent growth for the region in 2024, with a return to long-term average 2 percent growth in 2025.”
The capital markets for LAC countries also remained stable notwithstanding the low growth trajectory. “Global capital markets have remained open for most Latin American and Caribbean countries. Sovereign bond issuance reached nearly US$38bn in 2023, US$8bn more than in 2022.
“At the same time, financial conditions remained tight for governments and the private sector, largely because of the rise in global interest rates. Average yields on external sovereign bonds in the region increased from around 5.3 percent in 2021 to over 8 percent in late 2023, almost exclusively due to higher yields of U.S. treasuries. During 2023, bond spreads over U.S. treasuries remained stable for the region.”
A slowing US economy also poses a threat for slower growth for the LAC in 2024. “Shocks to U.S. growth and financial markets carry significant implications for growth in the LAC. The shocks on growth and financial markets in the United States could provoke a recession in the LAC starting in the first quarter of 2025 and extending through the third quarter of the same year, hitting a minimum of –0.4 percent in the second quarter of 2025. The region would return to positive growth rates at the end of 2025 and converge slowly to long-term 2 percent growth by 2028.