By: Staff Writer
November 5, 2024
The World Bank in their Economic Review for Latin America and the Caribbean for October, 2024 said that the LAC is “close to winning the battle on inflation and turning the corner on the macroeconomic dislocations wrought by the pandemic.”
The report also said: “Challenges remain, however, to redress fiscal imbalances and reduce debt, recover lost earnings power, and regain the advances in reducing poverty of the previous decade. Nor is there any prospect for substantially higher growth, which would help address those challenges. Investment, both public and private, remains depressed, and data suggest that the region is potentially missing the boat on “nearshoring” or “friendshoring,” the practice of bringing offshore operations to close or friendly countries. Both challenges point to a substantial agenda of growth-related reforms that have been put off for decades in infrastructure, education, regulation, competition, and tax policy which success in managing the post pandemic macroeconomic disequilibria provides an opportunity to now address.
“In the short run, the stubbornness of poverty and inequality is leading some governments to recur to take more direct measures, such as raising minimum wages as a means to support the poor—with both positive and potentially negative consequences if not pursued with caution. Concerns have also surfaced about one particular dimension of poverty—food insecurity and the cost of unhealthy diets.”
The report also said: “The region is close to vanquishing inflation, the second major macro challenge arising from the pandemic after the initial recessions. Among the large countries, Brazil and Peru are likely to achieve their inflation targets in 2024, with other major economies following soon after. Inflationary expectations remain anchored, and monetary authorities have begun to reduce interest rates; both nominal and real rates have begun to fall. That said, in the last mile, elements of inflation remain stubborn, with fuel and food prices still above their long-term trends and policy rate reductions need to proceed with deliberation. On the financial front, lower rates will reduce stress on households and firms that has given rise to sharp increases in nonperforming loans.”
It added: “For the short term, international headwinds are moderately positive. The US Federal Reserve’s September decrease in interest rates of 0.5 percent with further decreases expected by the end year signals increased confidence in achieving a soft landing—eliminating inflation without inducing a recession—and gives local authorities more freedom to lower rates without the danger of significant capital outflows. Growth in the Group of Seven (G-7) nations is expected to remain moderate this year. China, LAC’s largest trading partner, continues with sluggish and increasingly unpredictable behavior as authorities reconsider their growth model.
“This clearly spills over to softened commodity prices. Together, growth in LAC is forecasted to reach 1.9 percent in 2024, but with substantial variation across countries. Both business and consumer confidence are rising.”