The Inter-American Development Bank (IDB) has announced that economic growth in Latin America and the Caribbean has returned to more stable historical averages since the COVID-19 pandemic.
However, amid global shifts, the region needs to embrace a series of reforms to seize growth opportunities and chart a course toward greater prosperity for their citizens, it identified in its new macroeconomic report which was released earlier this month.
It noted the region grew two per cent in 2024, exceeding initial forecasts of 1.7 per cent, and is expected to grow 2.3 per cent in 2025.
The report, “Regional Opportunities Amid Global Shifts,” advised that projected growth rates are insufficient to address the region’s pressing socioeconomic needs, including reducing poverty and inequality.
It said countries in the region should, therefore, focus on boosting productivity while reducing socioeconomic inequalities and maintaining macroeconomic stability.
The report also highlighted a series of growth opportunities, including capitalising on the realignment of global supply chains, enhancing intraregional integration and reducing labour informality, while efficiently managing fiscal and monetary policy.
“Latin America and the Caribbean is at a pivotal moment to tap into unprecedented opportunities. Since the COVID-19 pandemic, the region has achieved a series of positive outcomes. Growth rates have returned to long-term averages, inflation has largely been contained, and many countries have taken steps toward fiscal consolidation.
“However, substantial risks remain, such as global trade fragmentation, volatility in financial markets, and uncertainty surrounding the global economy,” IDB’s chief economist and economic counsellor of the research department, Eric Parrado said.
According to the report, the median annual inflation rate in the region eased to 3.8 per cent by the end of 2024 after peaking at 9.8 per cent in July 2022. However, domestic factors, such as fiscal uncertainties and robust economic activity in some countries, continue to put pressure on prices.
The report also analysed how policymakers could balance monetary easing with inflation risks while ensuring financial conditions remain supportive of growth.
Among untapped economic opportunities, the report highlighted that strengthening intraregional integration through trade and foreign direct investment is critical to increasing productivity, fostering industrial diversification, and driving growth in Latin America and the Caribbean.
It said despite shared economic interests, intraregional trade accounted for only 15 per cent of the region’s total trade, compared to 55 per cent in Asia and 68 per cent in Europe.
The IDB also noted that shifting global dynamics have created opportunities for Latin America and the Caribbean to attract trade and investment flows, underscoring the urgency of integrating the region more deeply into global value chains.
The report also analysed how labour formalisation could favourably impact output, employment and government revenue.
It said informal workers and firms contribute less to GDP due to lower productivity and limited access to financing, while informality erodes the tax base and weakens public finances, suggesting that a formalisation process could increase GDP significantly in some countries through gains in productivity, better resource allocation and enhanced fiscal accounts.
The report also highlighted how countries could close fiscal gaps while supporting sustainable growth.
It said under baseline and stress scenarios, average public debt in America and the Caribbean will reach between 57 per cent and 63 per cent of GDP by 2027.
In a 2023 report, the IDB concluded the region should reduce public debt ratios to a prudent range of 46 per cent to 55 per cent of GDP.
In response, governments could strengthen fiscal positions by addressing inefficiencies in public spending, particularly in procurement and investment, transfers and salaries.
