By Rodrigo Campos
According to a recent report by the World Bank, economic growth in Latin America and the Caribbean is expected to slow to 1.9% this year, down from 2.1% in 2023, before picking up again in 2025. The region has missed out on growth opportunities stemming from global changes in supply chains, with public and private investment falling short of expectations.
Key factors contributing to this underwhelming growth include high capital costs, low education levels, inadequate infrastructure, and social instability. Despite the enthusiasm for nearshoring, foreign direct investment levels remain below those of 13 years ago in real terms.
The forecasted growth rate of 1.9% is an improvement from previous estimates, but the two largest economies in the region, Mexico and Brazil, are expected to experience slower growth this year. Argentina and Haiti are the only countries where economic contraction is anticipated, followed by a rebound in 2025.
Looking ahead to next year, the region's economy is projected to grow by 2.6%, slightly lower than the previous forecast of 2.7%. Inequality remains a significant issue, with high taxes on productive investment hindering growth. The report suggests taxing wealth as a means to generate revenue, but emphasizes the need for careful implementation.
The report highlights the challenges of tracking financial assets due to their mobility, advocating for a focus on real estate, which accounts for 80% of the region's wealth. This preference for property ownership reflects a cultural norm and a hedge against inflation.
Analysis:
The World Bank's report paints a mixed picture for Latin America and the Caribbean, with growth prospects improving but challenges persisting. Investors should be cautious about the region's economic stability and consider diversifying their portfolios to mitigate risks. High taxes on productive investment may deter potential investors, while the emphasis on real estate as a wealth holder presents opportunities for those looking to capitalize on the region's cultural norms.