The year 2024 continues to unfold in a landscape characterized by sluggish economic growth, particularly for the Latin American regionDefined by the United Nations Conference on Trade and Development as one experiencing a “low growth norm,” the global economy showcases some resilienceNonetheless, it remains vulnerable to continuous pressures such as geopolitical tensions, global trade protectionism, and escalating debt levels, which hinder any substantial recoveryWithin this context, the economic growth rates in Latin America linger at historical lows; however, structural challenges in specific sectors and nations seem to have been somewhat mitigated, allowing for a short-term decline in systemic financial risks.

Throughout 2024, the sluggish performance of Latin American economies persistsThe Economic Commission for Latin America and the Caribbean (ECLAC) projects a growth rate of merely 2.2%, falling short of the global average of 3.2% and placing it among the lowest within emerging markets and developing countries

The dichotomy in economic growth across the sub-regions of Latin America reveals a complex pictureThe three main sub-regions—South America, Central America, and the Caribbean—each demonstrate distinct resource endowments, economic structures, and trade flowsOver the past decade, a “seesaw” effect in growth has emerged where Central America and the Caribbean exhibited strong economic interlinkages, often interacting inversely with South AmericaIn 2024, these dynamics are expected to re-emerge with Central America and the Caribbean experiencing a slowdown, particularly due to constraints imposed by previous stringent policiesGrowth is expected to dip to 1.4% for Central America (including Mexico) and the Caribbean (excluding Guyana) while South America is anticipated to see a slight recovery, driven in part by positive performance in Brazil, raising the overall growth rate to 2.1%. Ultimately, the average growth rates for these three sub-regions have narrowed in variance compared to prior years.

The heterogeneity in growth rates among Latin American nations remains marked

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Of the 22 countries in the region, some exceed average growth metrics, with seven surpassing the average growth of 4.2% for emerging markets and developing economiesGuyana stands out as a significant success story, with newfound oil and gas discoveries propelling its GDP growth to a staggering 41.5%. Projections suggest that by 2024, Guyana's per capita GDP may outstrip Chile and Uruguay, reaching an impressive $30,000 by 2025. Venezuela also shows a glimmer of positivity, managing to rein in hyperinflation, which has allowed its economic activity to expand, as GDP growth is estimated at 6.2%. Other nations such as Belize, Antigua and Barbuda, Dominica, Saint Vincent and the Grenadines, and the Dominican Republic are experiencing GDP growth rates around the emerging economy average, attributed to revitalized tourism and remittance incomesConversely, countries including Haiti, Argentina, Cuba, among others, struggle significantly, with GDP growth remaining negative or severely constrained.

In the face of low growth, 2024 has also revealed certain structural transformations in Latin America’s economic landscape that could influence growth trajectories positively

Firstly, the region has witnessed a temporary boost in short-term economic stability, allowing for expanded monetary policy optionsAs inflation rates peaked in 2022, ECLAC reports that inflation has dropped from 8.2% to 3.7% in 2023 and further down to 3.4% in 2024, close to the 3% median inflation target for many national central banksBy September 2024, 23 nations in the region noted a decline in inflation, with Cuba, Suriname, and Venezuela experiencing some of the most significant decreases, facilitating an environment where countries can loosen monetary policies and consequently support economic recoveryLeading up to the Fed’s anticipated interest rate cuts in September 2024, various Latin American countries have preemptively engaged in reducing interest rates.

Additionally, positive wealth effects are manifesting, suggesting that room for policy transmission could widen

The dual impact of rising nominal wages due to minimum wage increases, coupled with declining inflation, has led to a rise in real wages across 15 nations in the region, particularly seen in Colombia, Mexico, Nicaragua, and Trinidad and Tobago, where increases exceed 3%. Furthermore, the unemployment rate has been maintained below 7% since 2022, dipping further to 6.1% in 2024. With public consumption, net exports, and investment demonstrating weaker momentum, the region increasingly relies on private consumption, which facilitates a more direct transmission of economic policies toward growth.

Lastly, a notable decline in debt risks has led to a marginal expansion in fiscal spaceSince 2021, debt levels across Latin American countries have witnessed a gradual decreaseBy 2024, the average public debt to GDP ratio for 16 Spanish-speaking nations in Latin America is projected to be 52.6%, down by 2.4 percentage points from the previous year, while the Caribbean nations average 66.4%, a decrease of 4.2 percentage points

This reduction combined with years of dwindling imports has prolonged a current account surplus, resulting in an accumulation of international reserves, growing to $850.198 billion by September 2024—a 6.5% increase year-on-yearThese structural dynamics are advantageous in lowering the debt risks, and a reduced liability position opens the potential for public financing, paving the way for future fiscal policy initiatives.

Yet, the overarching narrative of “low growth” remains pervasive and challenging to alterRecent reports from ECLAC characterize the Latin American economic saga as being trapped in a “low growth capability” conundrumA protracted period of economic stagnation, now stretching over 11 years, has increasingly marginalized Latin America in the global economic sphereThe International Monetary Fund (IMF) estimates that from 1990 through 2023, the region contributed a mere 0.5% to global economic growth, a figure that is likely to shrink to 0.3% over the period of 2024 to 2029. Compounding this is the inadequacy of counter-cyclical macroeconomic policies across many countries, which leaves the region’s recovery significantly reliant on the self-correcting tendencies of the market

Although some structural changes are evident in 2024, substantial transformation remains a long-term prospect.

Current trends indicate that growth drivers in Latin America remain insufficientThe fundamental issues surrounding the lack of endogenous growth persist, as demonstrated by OECD statistics, which show that during the 1950s through the 1970s, the region's total factor productivity (TFP) grew at an annual rate of 5.3%, contributing approximately 25% to GDP growthFrom 1980 onwards, however, TFP has witnessed an annual decline of 0.08%, thus dragging economic growth down with itAdditionally, external vulnerabilities continue to amplify economic fragility, rendering Latin America more susceptible to external shocksConsequently, against the backdrop of sluggish global economic recovery, the prevailing “low growth” dynamics are unlikely to reverse in the short term.

In terms of fundamentals guiding economic growth, short-term prospects appear likely to endure

The structural improvements within labor markets can still fuel private consumption, and the historically high commodity prices provide a critical support for exports and investments for many nationsFurthermore, the relief in macroeconomic policymaking opens avenues for fiscal stimulus and monetary easing, benefitting public expenditure and capital investment in the regionBrazil and Mexico, the largest economies in Latin America, are projected to uphold positive growth trajectories into 2024, while Argentina’s recent reforms show promise in revitalizing its economic performance.

According to IMF forecasts, Latin America’s GDP growth is expected to reach 2.4% in 2025, with individual growth rates for South America, Central America (including Mexico), and the Caribbean (excluding Guyana) pegged at 2.6%, 1.7%, and 2.6% respectivelyNonetheless, these figures will still lag behind average rates for emerging markets and developing economies.