Inflation, poverty and brakes on growth: the challenges of the economy in Latin America to 2024

The economic slowdown, inequality and the increase in the cost of debt are some of the common economic challenges of Latin America for 2024, to which are added other more specific ones such as hyper inflation in Argentina or the promotion of key economic sectors in Mexico, Chile or Brazil.

The Economic Commission for Latin America and the Caribbean (ECLAC) raised the regional GDP growth projection for 2023 to 2.2%, but warned that the global macroeconomic scenario remains “complex”.

The Argentine landscape is particularly mentioned in the report, which indicates that the country records 45% of the population in poverty and an inflation of 160% on an annual basis, so the economic challenges facing the country are multiple but The first and most urgent is to stabilize the macroeconomy.

Large and ambitious programs

The Organization for Economic Co-operation and Development (OECD) indicated in its latest report that Latin America must adopt an ambitious and broad-based investment agenda to reduce poverty and extreme poverty.

Brazil, Latin America’s largest economy, will lose momentum next year, as the OECD estimates growth of 1.8% in 2024, compared to 3% calculated for 2023, which it could complicate the financing of the large social programs of the government of Luiz Inácio Lula da Silva.

Behind the brake is a agricultural sector in difficulty due to the El Niño phenomenon. The lack of rain and high temperatures in the center and north of the country have forced harvest projections to be revised downwards and, according to the sector, agricultural GDP will go from growth of 14.5% in 2023 to 1.5 % in 2024.

The government will be under pressure to reach the zero deficit target for next year and to reduce the gap, the Executive will implement a tax reform that aims to simplify the complex fiscal puzzle that has been in place for more than three decades.

With inflation under control, the Central Bank is expected to continue cutting the interest rate, which was among the highest in the world at 13.75%, so a less tense relationship between the monetary authority and the government in 2024.

In Mexico the main challenges are investments in infrastructure, mainly in the water and energy sectors, and take advantage of its competitive advantages by having the United States as a major partner, as well as the increased relocation of supply chains to North America.

Andrés Manuel López Obrador’s government expects its economy to grow by 3.3% by the end of 2023 and up to 3.5% by 2024.

THE political uncertainty It will also occupy Mexico twice. On the one hand, the elections of June 2024, in which a new president will be elected. And, on the other, possible tensions before the US elections to succeed President Joe Biden in November.

Chile, zero growth

In Chile, with the contained inflation and while waiting for the year to close below 5% and for an aggressive cut in interest rates to be underway, the big challenge for 2024 is to return to growth.

The OECD expects the Chilean economy to succeed zero growth this year mainly due to the “weakness” of domestic demand, but in 2024 GDP will grow by 1.8%.

The figure is similar to what the IMF forecast, between 1.5% and 2%, while the government is a little more optimistic and expects an expansion of up to 2.5%.

For this reason, the so-called “Economic Growth Cabinet”, chaired by President Gabriel Boric and composed of the ministers of Finance, Economy, Labour, Public Works and Science.

The aim is to promote and accelerate various investment projects, both public and private, and promote key sectors such as mining and construction.

Colombia faces 2024 with several challenges, the main ones being controlling inflation, lowering interest rates and reactivating the economy.

The country’s GDP will grow by only 1.2% this year and for 2024 a slightly greater expansion is expected, 1.4%, at two speeds, “a dynamic that is still slow in the first half of the year” and ” a much stronger recovery.” more marked in the second half” when fixed investment is expected to start improving after this year’s 9.3% decline – closing at -2.0% in 2024 – according to BBVA Research forecasts.

“Economic moderation could be maintained in the first months of 2024 because the slowdown in employment will be combined with the maintenance of weak consumption and investment data,” says Juana Téllez, chief economist for Colombia at BBVA Research.

When it comes to growth, the focus is on the Bank of the Republic (monetary authority), which maintained a restrictive policy throughout the year to avoid a greater increase in inflation, whose interannual rate in November was 10 .15%, which in turn led to a slowdown in production activity.

For the last eight months the base interest rate remained at 13.25%, but the Bank of the Republic decided to lower it by 25 basis points and it remained at 13%.

Peru will end 2023 in recession which took the country from great regional economic certainty to uncertainty.

According to the president of the Chamber of Commerce of Lima (CCL), Rosa Bueno, the first challenge in 2024 is “to be able to carry out minimal political reforms to guarantee adequate elections, because political noise and political instability are not allowing to generate trust necessary to reactivate the economy.”

The second is to “maintain fiscal discipline,” as the country has done for more than 30 years. To do this, he believes it is essential to “have clarity” on the accounts and the direction in which Peru should head and the third is to overcome the economic recession, in addition to the fact that “there has been a very significant drop in employment”.

Source: EFE