"Slower economic growth is compounded by strong inflationary pressures, sluggish job creation, declining investment, and increasing social demands. This situation has translated into major challenges for macroeconomic policy, which must reconcile policies that promote economic recovery with policies aimed at controlling inflation and ensuring the sustainability of public finances.".
EFE Santiago, Chile
The Economic Commission for Latin America and the Caribbean (ECLAC) today released its annual report, Economic Survey of Latin America and the Caribbean 2022: Dynamics and Challenges of Investment to Boost a Sustainable and Inclusive Recovery, in which it projects an average economic growth of 2.7% for this year, in a context of strong macroeconomic constraints that are hitting the economies of the region.
For the Dominican Republic, growth is projected at 5.3%, the highest in Central America.
According to the report presented at a press conference held at the headquarters of the United Nations agency in Santiago, Chile, a sequence of crises has led to the scenario of low growth and accelerating inflation that the global economy presents, which together with slower trade growth, 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 constraints, coordination of macroeconomic policies is required to support the acceleration of growth, investment, the reduction of poverty and inequality, while addressing inflationary dynamics,” declared Mario Cimoli, Interim Executive Secretary of ECLAC, at the launch of the 2022 Economic Survey.
“The region is expected to return to the low growth trajectory it experienced before Covid-19. In a new edition of its annual report, "Economic Survey of Latin America and the Caribbean," the United Nations agency warns of the challenges of reviving investment and growth in a context of increasing external and internal constraints
The document highlights that Latin American and Caribbean countries face a complex economic outlook in 2022 and the years to come. Slower economic growth is compounded by strong inflationary pressures, sluggish job creation, declining investment, and increasing social demands. This situation has translated into significant challenges for macroeconomic policy, which must reconcile policies that promote economic recovery with policies aimed at controlling inflation and ensuring the sustainability of public finances.
The report notes that the complex internal scenario of the region is compounded by an international scenario in which the war between the Russian Federation and Ukraine has caused increasing geopolitical tensions, slower global economic growth, reduced food availability, and energy price increases that have exacerbated inflationary pressures already occurring as a result of supply shocks generated by the coronavirus disease (COVID-19) pandemic.
ECLAC projects that South America will grow by 2.6% (compared to 6.9% in 2021), the group made up of Central America and Mexico by 2.5% (compared to 5.7% in 2021) and the Caribbean —the only subregion that will grow more than in 2021— by 4.7%, not including Guyana (compared to 4.0% in the previous year).
The 2022 Economic Survey also shows that the conflict in Ukraine intensified the upward trend in commodity prices that had been ongoing since the second half of 2020, pushing some prices to record highs. For the region as a whole, the effect is mixed, with a projected 7% decline in the terms of trade for commodities.
Inflation, meanwhile, has continued to rise, reaching a regional average of 8.4% in June 2022, more than double the average recorded between 2005 and 2019. At the subregional level, South American economies had the highest average inflation rate in June 2022 (8.8%), followed by Central America and Mexico (7.5%) and the English-speaking Caribbean (7.3%). This has led central banks to raise their monetary policy rates and reduce monetary aggregates.
On the other hand, the economic slowdown is hindering the recovery of labor markets, especially for women. While the male unemployment rate fell from 10.4% at the end of the second quarter of 2020 to 6.9% at the end of the first quarter of 2022, a reduction of 3.5 percentage points, the female unemployment rate decreased by 2.1 percentage points during the same period, dropping from 12.1% to 10.0%. Furthermore, at the end of the first quarter of 2022, the female labor force participation rate (51.4%) lagged behind the male participation rate (74.2%). This lag in women's reintegration into the labor market is due to the delayed recovery of economic sectors that concentrate female employment and the increased need for caregiving that became particularly pronounced after the start of the pandemic.
In its second part, the ECLAC report emphasizes that, beyond the dynamics of the economic cycle, the low growth in investment over the last three decades has become a structural constraint on development. Therefore, reactivating investment is central to sustainable and inclusive growth, as investment bridges the gap between the short and medium term and is essential for addressing climate change.
Between 1951 and 1979, gross fixed capital formation (investment) in real terms grew by an average of 5.9% annually, while between 1990 and 2021 the average investment growth rate was only 2.9% per year. Therefore, ECLAC is urgently calling for increased investment in Latin America and the Caribbean, which stood at the lowest levels at the end of 2021 compared to other regions. To achieve this, greater coordination between fiscal, monetary, and exchange rate policies is needed, along with leveraging the full range of tools available to authorities so as not to subordinate growth and investment to anti-inflationary policies. Furthermore, macroeconomic efforts must be complemented by industrial, trade, and social policies, as well as the care economy, the document states.
It is also emphasized that a significant portion of the financing needed to increase investment must come from mobilizing domestic resources, but international cooperation must accompany this process. Therefore, official development assistance and financing from global financial institutions and development banks must be significantly increased.
