SANTIAGO, Chile – The Economic Commission for Latin America and the Caribbean (ECLAC) Tuesday warned of the challenges to be faced by countries in the region as they move to reactivate investment and growth in a context of growing external and internal restrictions.
In its latest annual report titled “Economic Survey of Latin America and the Caribbean 2022″, the United Nations organization made reference to the dynamics and challenges of investment to promote a sustainable and inclusive recovery, in which it projects economic growth for the current year of 2.7 percent average.
It said that such growth would occur in a context of strong macroeconomic restrictions that are hitting the economies of the region.
But ECLAC said that the Caribbean, the only subregion to show year-over-year growth, grew by 4.7 percent in 2022 compared to four percent in 2021.
ECLAC notes that in the case of the Caribbean, while income has increased “it has a precarious situation with many countries such as Barbados and Belize continuing to have a huge debt.
“So in this context of strong external restrictions, we are projecting that the region will grow 2.7 percent, which is less than half of what it grew last year and so it will continue with that low growth path as we have seen and this year we are expecting 2.7 percent growth and we expect that the slowdown will continue to feature”.
|ECLAC said Haiti will be the only Caribbean country that will register a minus 0.2 growth.
According to the report presented at a news conference here, a sequence of crises has led to the scenario of low growth and inflationary acceleration presented by the global economy, which together with the lower growth of the trade, the appreciation of the dollar, and the tightening of global financial conditions will negatively affect the countries of the region.
“In a context of multiple objectives and growing restrictions, a coordination of macroeconomic policies is required to support the acceleration of growth, investment, the reduction of poverty and inequality, while facing inflationary dynamics”, said Mario Cimoli, the ECLAC acting executive secretary.
The report notes that the countries of Latin America and the Caribbean face a complex economic panorama in 2022 and in the years to come. Added to the lower economic growth are strong inflationary pressures, low dynamism in job creation, falls in investment and growing social demands. This situation has translated into great challenges for macroeconomic policy, which must reconcile policies that promote economic reactivation with policies aimed at controlling inflation and making public finances sustainable, according to the report.
It said added to the complex internal scenario of the region is an international scenario in which the war between the Russian Federation and Ukraine has caused growing geopolitical tensions, less dynamism in global economic growth, less food availability and increases in the price of energy that The inflationary pressures that had been occurring as a result of the supply shocks generated by the COVID-19 pandemic have increased, the report states.
ECLAC projects economic growth in South America will grow by 2.6 percent compared to 6.9 in 2021), the group made up of Central America and Mexico by 2.5 percent compared to 5.7 percent in 2021.
The 2022 Economic Survey also shows that the conflict in Ukraine intensified the upward trend that the prices of basic products had already shown since the second half of 2020, causing some of them to reach historical levels. For the region’s average, the effect is mixed, and a 7% drop in the terms of trade for basic products is projected.
Inflation, for its part, has continued to rise, standing at a regional average of 8.4 percent as of June 2022, which is equivalent to more than double the average value recorded in the 2005-2019 period. At the subregional level, it can be seen that in June 2022 the economies of South America had the highest level of inflation on average (8.8 percent), followed by the economies of the group made up of Central America and Mexico (7.5 percent) and those from the English-speaking Caribbean (7.3 percent).
“This has led central banks to increase their monetary policy rates and reduce monetary aggregates.
On the other hand, the slowdown in economic activity is restricting the recovery of labor markets, especially for women. While the male unemployment rate went from 10.4 percent at the end of the second quarter of 2020 to 6.9 percent at the end of the first quarter of 2022, presenting a reduction of 3.5 percentage points, the female unemployment rate registered a decrease of 2.1 percentage points in the same period, going from 12.1 to 10 percent,” ECLAC said, adding that likewise, at the end of the first quarter of 2022, the female labor participation rate (51.4 percent) shows a greater lag than the male participation rate (74.2 percent).
The ECLAC report also emphasizes that beyond the dynamics of the economic cycle, the low growth of investment in the last three decades has become a structural limitation of development. Therefore, reactivating the investment dynamic is central to sustainable and inclusive growth, since investment is the bridge between the short and medium term and is essential to face climate change.
Between 1951 and 1979, gross fixed capital formation (investment) in real terms grew by an average of 5.9% per year, while between 1990 and 2021 the average growth rate of investment was only 2.9 percent per year.
“For this reason, ECLAC makes an urgent call to increase investment in Latin America and the Caribbean, which was at the lowest levels at the end of 2021 compared to other regions.
“To achieve the latter, greater coordination between fiscal, monetary, and exchange rate policy is necessary, as well as taking advantage of the set of tools available to the authorities so as not to subordinate growth and investment to anti-inflationary policy. In addition, macroeconomic efforts must be complemented by industrial, commercial, social and care economy policies, the document indicates.”
The report also notes that an important part of the financing to increase investment must come from the mobilization of internal resources, but international cooperation must accompany this process. Therefore, official development assistance and financing from global financial institutions and development banks must be increased significantly.
