Near shoring, green economy, good growth options for Latam, Caribbean – World Bank

11:21 am Tuesday, April 04th, 2023

NEW YORK (Reuters) – Near-shoring and the green economy offer opportunities to Latin America and the Caribbean (LAC) that the region should seize, as current estimated economic growth won’t be enough to make a dent on poverty, the World Bank said in a report on Tuesday.

The global lender said its forecasts for 2023 growth in the region have been continuously downgraded over the last six months and the estimate sits at 1.4%, with 2024 and 2025 seen at 2.4%, “too low to make significant progress in poverty reduction”.

“The region has largely recovered from the pandemic crisis but unfortunately is back to the low growth levels of the previous decade,” said Carlos Felipe Jaramillo, World Bank vice president for Latin America and the Caribbean.

“Countries need to urgently accelerate inclusive growth.”

Two decades of progress in macroeconomic management have given LAC an overall economic resilience, with the debt-to-output ratio seen dipping to 64.7% of GDP from 66.3% last year -though this is happening amid higher global financing costs.

Poverty levels have fallen and employment risen to the point where both are for the most part back to pre-pandemic levels. Inflation, excluding Argentina, is expected to fall to 5.0% this year from 7.9% in 2022.

But the region is also spending beyond its means and fiscal imbalances are expected at 2.7% of output this year.

BETTER INTEGRATION

LAC has for years offered investors a rough environment of rapidly changing rules, high transport costs and an unevenly educated workforce, which means Canada, the United Kingdom and sometimes the United States are more attractive than the regional behemoths Brazil and Mexico.

These add to investor concerns over local costs of capital, real estate and taxes, the World Bank said.

“The LAC region remains one of the least integrated, while trade openness and (foreign direct investment) flows have mostly been stagnant or decreasing over the past 20 years,” said William Maloney, chief economist for Latin America and the Caribbean at the World Bank.

“Countries should find ways to gain attractiveness and take advantage of the near-shoring trends,” he said, while leveraging the region’s advantages in sustainable energy production and green transition commodities.

(Reporting by Rodrigo Campos, editing by Ed Osmond)