Growth in Latin America and the Caribbean will slow to 2.1% in 2022, says ECLAC report | News
The Latin America and Caribbean region will see its growth rate slow in 2022 to 2.1%, after averaging 6.2% last year, according to new projections released today by the Economic Commission for America Latin America and the Caribbean (ECLAC).
This slowdown is part of a context of significant asymmetries between developed, emerging and developing countries with regard to the ability to implement fiscal, social, monetary, health and vaccination policies for a lasting exit from the crisis triggered by the COVID-19 pandemic.
The annual report of ECLAC, entitled Preliminary Overview of Latin American and Caribbean Economies 2021, was unveiled today during a virtual press conference held from Mexico City by the Executive Secretary of the United Nations, Alicia Bárcena.
The document indicates that the region faces a very complex year 2022: uncertainty about the ongoing evolution of the pandemic, a sharp deceleration in growth, persistent weakness in investment and productivity and a slow recovery in employment. , persistence of crisis-induced social effects, reduced fiscal space, increased inflationary pressures and financial imbalances.
“The expected slowdown in the region in 2022, combined with the challenges of low investment and productivity, poverty and inequality, calls for growth and job creation to be central elements of public policy making while tackling inflationary pressures,” Bárcena said in a press release today.
According to ECLAC, the average growth of 2.1% forecast for this year reflects great heterogeneity between countries and sub-regions: the Caribbean will increase by 6.1% (excluding Guyana) and Central America by 4.5 %; while South America will increase by 1.4%.
At the same time, in 2021, the region experienced higher than expected growth of 6.2% on average, due to the low baseline established in 2020, greater mobility and a favorable external context.
According to Preview 2021, estimates indicate that advanced economies will grow by 4.2% in 2022, being the only ones to resume the growth trajectory predicted before the pandemic during this year.
Emerging economies, meanwhile, are expected to grow by 5.1% in 2022, but will not return to the growth trajectory predicted before the pandemic until 2025.
In 2021, 11 countries in Latin America and the Caribbean have managed to return to pre-crisis GDP levels. In 2022, three other countries will join them, making a total of 14 countries out of the 33 in the region.
It is of paramount importance that the combination of monetary and fiscal policies prioritizes stimulating growth as well as controlling inflation, ECLAC added in the press release.
This implies the need for coordinated fiscal and monetary policies and the use of all available instruments to adequately prioritize the challenges of growth with monetary and financial stability.
SLOW EMPLOYMENT RATE
In terms of the labor market, employment recovered at a slower pace than economic activity last year: 30% of the jobs lost in 2020 had not been recovered in 2021. Moreover, the inequality between men and women has increased, reflecting the greater burden for women and less dynamism in sectors where female employment is concentrated, such as services.
In 2022, ECLAC projects a female unemployment rate of 11.5% – slightly lower than the 11.8% recorded in 2021, but still well above the 9.5% existing before the pandemic in 2019 – while unemployment among men is expected at 8.0% this year. year, almost identical to that of 2021 (8.1%) and still well above the 6.8% observed in 2019.
The report also addresses one of today’s most pressing economic issues regionally and globally: rising prices for goods and services. In 2021, inflationary pressures were observed in the majority of countries in the region, driven by rising food and energy prices (inflation reached 7.1% on average in November, excluding Argentina, Haiti, Suriname and Venezuela), and these pressures are expected to continue into 2022.
The countries’ central banks expect inflation levels to remain above the established target range, although they will tend to converge towards the end of 2022 or the beginning of 2023. Once again, the price of l energy and food on international markets, as well as the evolution of the exchange rate, will be decisive in determining the future dynamics of prices.
ECLAC emphasizes that inflation is a multicausal phenomenon, which means that monetary authorities should continue to use the full range of instruments (monetary, exchange rate and macroprudential) at their disposal, beyond the interest rate, to deal with inflationary pressures without hampering the momentum of recovery. growth and jobs and achieve sustainable, inclusive and fairer growth, says the document.
INCREASE TAX COLLECTION
In addition, the United Nations stresses that increasing tax collection levels and improving the tax structure are crucial to ensuring fiscal sustainability from an increasing trajectory of spending demands.
Challenges projected in 2022 – including weaker economic growth, higher interest rate risks, currency depreciations and possible weakening of sovereign credit ratings – make managing fiscal policy more complex, said ECLAC.
“This is why a strategic view of public spending is needed, which would link short-term demands to long-term investments and help close social gaps. In addition, fiscal space needs to be expanded by eliminating tax evasion (which amounts to $325 billion, or 6.1% of regional GDP), consolidating personal and corporate income taxes, extending the scope of taxes on assets and property, establishing taxes on the digital economy, environmental and other levies related to public health issues, and the gradual review and update of royalties for the exploitation of non-renewable resources,” the statement said.
In another area, ECLAC said financing for development is also essential to support policy spaces and investments. Liquidity must be expanded and redistributed from developed countries to developing countries; strengthen development banks; reform the international debt architecture; provide countries with a set of innovative instruments aimed at increasing debt repayment capacity and avoiding over-indebtedness; and integrating liquidity and debt reduction measures into a resilience strategy focused on building a better future.