The Economic Commission for Latin America and the Caribbean (ECLAC) recently published its annual report 'Economic Survey of Latin America and the Caribbean 2023. Financing a sustainable transition: investment for growth and climate change action,’ a text in which it forecasts that the region's economies will maintain low levels of growth this year and next, especially thanks to the very complex negative global and regional economic outlook.

José Manuel Salazar-Xirinachs, ECLAC’s executive secretary, said in a press release:

Latin America and the Caribbean’s low growth may be aggravated by the negative effects of an intensification of climate shocks, if the investments that countries need in climate change adaptation and mitigation are not made.

Key Findings

The report, which has been published since 1948, states that a regional average GDP growth of 1.7% is expected for 2023, while for 2024 a slight decrease in the growth rate is projected that would lead the regional gross domestic product to increase only 1.5%.

According to ECLAC, the dynamics of the world economy remains on a path of low economic growth and global trade, therefore, despite the falls in the inflation rate, developed countries will probably continue with their monetary contractive policies.

The organization indicates that a significant drop in external interest rates cannot be expected this year, while financing costs for the countries of the region will remain high.

“Although the public debt of the region’s countries has fallen, it is still elevated as a proportion of GDP, which, coupled with the increase in external and internal interest rates and an expected decline in tax revenue due to lower growth, will result in limited fiscal space for the region as a whole. In addition, less dynamism in job creation is anticipated, along with growing social demands,” points out ECLAC.

Projections

According to projections made by ECLAC for 2023, all the subregions will exhibit lower growth compared to 2022: South America would grow by 1.2% (3.7% in 2022); the group made up of Central America and Mexico 3.0% (3.4% in 2022); and the Caribbean (not including Guyana) 4.2% (6.3% in 2022).

For its part, the organization highlights that projections for 2024 indicate that the low economic dynamism in the region will continue, anticipating that the international context will continue to be unfavorable, with GDP growth and world trade well below historical levels. 

Likewise, ECLAC points out, in the domestic sphere the limited space for fiscal policy will be maintained, although the reduction in inflation in the region opens more space for monetary policy in the countries.

“In these circumstances, ECLAC forecasts average growth in 2024 of 1.2% for South America, 2.1% for Central America and Mexico, and 2.8% for the Caribbean (excluding Guyana)” it is highlighted.  

La #CEPAL dio a conocer hoy su informe anual #EstudioEconómico de #AméricaLatina y el #Caribe 2023, en el cual proyecta un bajo crecimiento económico para 2023 y 2024, en un panorama económico mundial negativo y regional muy complejo.
Toda la info https://t.co/cDHeODSaor pic.twitter.com/265OTWs7l2

— CEPAL (@cepal_onu) September 5, 2023

Impact

The 2023 Economic Study also indicates that the low growth of economic activity in 2023 and 2024 will escalate to a slowdown in employment development, whose growth is estimated at 1.9% in 2023, and 1.1% in 2024.

In the same way, for the authors of the report it is worrying not to know what the quality of employment will be in this context of low growth, since it is very probable that workers become more vulnerable, have lower levels of social protection, and are employed in sectors less productive.

“Given the challenges of boosting growth and tackling climate change, it is essential to enhance public and private investment. Public investment in the region is low in comparison with advanced economies, and even other developing regions. This low level of investment has translated into a stock of public capital – infrastructure – that is insufficient for boosting economic growth and promoting productive development,” ECLAC’s report emphasizes.

Climate Threat

The study also reflects on the macroeconomic impacts that climate change can generate in the countries of the region.

The estimates presented in the study indicate that, in 2050, the GDP of a group of six countries could be between 9% and 12% less than that corresponding to a scenario of trend growth, if the investments are not made to offset weather shocks.

In this way, it points out, the volume of additional investment required is exceptionally large, between 5.3% and 10.9% of GDP per year, which would represent a significant increase compared to current levels of investment.

Finally, the report invites the governments of these countries to redouble their efforts in 4 main scenarios:

1. Fiscal space, through an increase in revenue and in the progressivity of the tax structure, green public spending and access to new financing mechanisms, such as thematic bonds
2. Management of financial and foreign-exchange risks through macroprudential policy
3. Mobilization of concessional financing and development banking, to deepen climate finance, through multilateral, regional and national development banks and to foster Official Development Assistance (ODA) flows to fight climate change
4. Debt relief mechanisms, such as the establishment of institutional mechanisms for restructuring, and the inclusion of clauses linked to disasters and hurricanes, and achievement of climate targets

“There must be a considerable increase in concessional financing that would allow for sustaining investment trajectories over time. These efforts must be accompanied by domestic macroeconomic policies that favor resource mobilization,” added Salazar-Xirinachs.