Preparing the Macroeconomic Terrain for Renewed Growth

2023 Latin American and Caribbean Macroeconomic Report

Economic growth in Latin America and the Caribbean was stronger than expected in 2021 but waned at the start of 2022. The surge in commodity prices due to the war between Russia and Ukraine will provide a boost to exporters, while imposing significant costs on commodity importers and pushing up inflation across countries. The ongoing conflict, together with policy normalization in advanced economies, carries significant risks for the region. Volatility in financial markets could depress investment and bring down growth further.

The year 2020 will be remembered as one of the most challenging in modern history. Latin America and the Caribbean lost 7.4% of GDP, the largest drop on record in a single year. The region is expected to recover in 2021 but faces a hazardous time ahead. Most countries will require some type of adjustment to maintain fiscal sustainability.

The novel coronavirus is taking a huge toll across the world, and governments in Latin America and the Caribbean are right to take aggressive measures to save lives. Within a matter of weeks, the macroeconomic outlook for the region has changed dramatically. Financing costs have risen, commodities fallen, and large losses of GDP now seem unavoidable.

This report analyzes the potential consequences for the region of selected negative external shocks. It considers how countries can strengthen macroeconomic policy frameworks to mitigate these events and the monetary, fiscal, and debt management policy choices available. However, it also considers opportunities. More and better-targeted infrastructure investments can enhance growth prospects. And while public investment is constrained by tight budgets, the window of opportunity to pursue private financing to boost investments remains open as interest rates are still relatively low.

The 2018 Macroeconomic Report, A Mandate to Grow, revisits the growth debate that has been raging in the region for the past half century. Viewing the debate from this long-term perspective allows for a focus on the structural factors that have prevented Latin America and the Caribbean from reaching the growth potential required to keep pace with faster growing regions and to fulfill the aspirations of its population.

The 2017 Macroreport considers recent developments in the global economy and how they may affect Latin America and the Caribbean. It reviews how countries are adapting to external conditions and how those policies may be improved. This year, the report focuses particularly on deeper and smarter regional integration as an attractive route to boost productivity and growth.

The commodities boom that once buoyed the region’s economies is over, and countries have less fiscal space to undertake counter-cyclical policies than they did during the global financial crisis. This year’s Latin American and Caribbean Macro Report surveys the challenges facing the region in a new economic era and offers guidance on how policymakers can reduce long-term risks in a period of lower growth.

The 2015 Latin American and Caribbean Macroeconomic Report argues that the region is in the midst of a labyrinth and must navigate several global and domestic obstacles—including lower commodity prices and new types of financial risks—to ensure strong and sustainable growth. The report suggests that many countries must make fiscal adjustments to avoid higher debt without compromising the significant social gains of recent years, and details both the types and speed of policies that may be adopted.

Monetary normalization may be a chronicle foretold, but countries still have the power to influence the outcome for their own economies. This report focuses on the risks Latin American and Caribbean countries face and how they can reduce vulnerabilities and enhance opportunities.

Global growth projections have waned since last year and growth may be suppressed below potential for several years to come. Lower global growth will, all things being equal, imply lower growth in Latin America and the Caribbean. At the same time, clear limits to the potential use of monetary and fiscal policy measures pose another constraint. Consequently, countries should consider further structural reform measures to enhance economic prospects and to escape suppressed global growth.

This report details the divergent paths that the world economy may take and their potential effects on Latin America and the Caribbean. Scenarios are constructed employing a modeling exercise that captures the trade, financial and other linkages between the region and the rest of the world. While vulnerabilities remain and external shocks have been and remain critical, the region enjoys many strengths and has developed a growing arsenal of policy tools. What is the balance of vulnerabilities versus strengths? How can countries address the existing vulnerabilities?