The United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC) updated its growth projections for 2023 to 1.7 percent — an improvement from April’s 1.2 percent forecast but still significantly below the 3.8 percent expansion recorded in 2022.
“The region’s largest economies are proving to be more resilient than anticipated at the beginning of the year. In Brazil, the outlook has been adjusted following two strong quarterly GDP performances. Mexico also exceeded expectations, benefiting from the resilience of the US economy and the nearshoring trend [receiving factories and supply chains from the US],” explained ECLAC’s Executive Secretary, José Manuel Salazar-Xirinach, to journalists. While the region’s year-on-year GDP growth slowed by 0.5 percentage points in the first quarter of 2023, Brazil’s and Mexico’s grew by 1.8 and 1 percent, respectively.
Despite the improved projections, the commission warned of a more significant slowdown in global demand, stating that “global GDP and trade growth are well below historical averages.” Internally, the deterioration of the fiscal status of Latin American countries is expected to worsen the gap between investment capacity and needs.
Additionally, Mr. Salazar-Xirinach stated that a range of challenges arising from climate change and phenomena like El Niño are increasing the need for investments in a region where historically, investment has been limited.
As a result, all subregions are expected to experience slower growth this year compared to 2022, with South America projected to grow by 1.2 percent (compared to 3.7 percent in 2022), Central America and Mexico by 3 percent (3.4 percent), and the Caribbean (excluding Guyana) to grow by 4.2 percent (down from 6.3 percent).
The recommendation is to continue to ease monetary policy where possible, especially now that inflation is displaying clear signs of slowing down, while also establishing a new fiscal agreement that sets the foundation for a sustainable, focused public finance framework. This is the recipe that ECLAC has recommended to countries in the region. “In the medium term, fiscal covenants are needed to strengthen personal income tax, which is considered the source of the main tax gap between the region and the countries of the OECD. Expanding the scope of estate and property taxes is crucial. Countries could also consider implementing taxes related to the environment and to public health issues,” says ECLAC’s new report. Accomplishing such a task is far from straightforward, given that the public debt levels of 16 selected countries in the region amounted to 51.4 percent of GDP in 2022, slightly below the record levels of 56.3 percent observed in 2020.
Anticipating that the sluggish scenario will persist into 2024, ECLAC forecasts that the economies of Latin America and the Caribbean will achieve a combined growth rate of only 1.5 percent next year, which is half the growth projected for the global economy.
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