The United Nations reported on Wednesday that the economies of Latin America and the Caribbean are expected to rise by 2.4% in 2025, driven mostly by increased domestic consumption.
However, this predicted expansion is mitigated by the risks connected with rising global geopolitical and trade tensions.
The UN Economic Commission for Latin America and the Caribbean (ECLAC) amended its growth forecasts, reducing the former estimate of 2.3% from August.
Nonetheless, the overall estimate predicts that the region will remain on a “low growth trajectory.”
Private consumption: the growth engine
According to the ECLAC research, private consumption is likely to be the dominant driver of regional growth.
The estimated expansion for 2025 is similar to that of 2024, albeit at a more modest pace.
Consumption is expected to expand slightly faster than GDP, demonstrating the strength of household spending in the face of external headwinds.
In addition, the agency raised its 2023 forecast, projecting a 2.2% growth rate, up from a previous estimate of 1.8%.
Despite the improved trends in private consumption, the research identifies underlying labour market concerns, such as a weak labour force participation rate that remains lower than pre-pandemic levels, as well as continuing gender inequality that affects workforce dynamics.
Geopolitical risk and economic stability
ECLAC stressed that the primary risks to Latin America’s economies are rising geopolitical and trade conflicts throughout the world.
These tensions might have a considerable impact on raw material pricing, complicate shipping routes, and disrupt transportation operations, jeopardizing economic stability and growth.
According to this analysis, Brazil, the region’s largest economy, is expected to grow by 2.3% in 2025, while Mexico will grow at a slower rate of 1.2%.
Argentina, on the other hand, is expected to develop at a rapid 4.3% each year.
These varying forecasts reflect the economic situations and policy contexts of particular countries.
Inflationary trends and interest rate adjustments
The steady decline in inflation is one of the region’s more positive indications.
This, combined with monetary easing initiatives in the United States, has allowed regional central banks to take a cautious approach to interest rate reductions.
ECLAC also stated that monetary policy tweaks could give some relief and assistance for domestic consumption.
Nonetheless, the commission warned that the prognosis for investment remains bleak.
Weak public spending has resulted in a reduction in gross fixed capital creation, raising concerns about its ability to support medium- and long-term growth.
The research emphasizes the importance of creating a favourable investment climate in order to achieve robust and long-term economic growth.
Export and import recovery planned
On a more optimistic note, ECLAC predicts that both exports and imports of products and services will recover in 2025 compared to 2024 levels.
This projected recovery demonstrates the region’s strength in trade dynamics and predicts a possible return in cross-border economic activity, which might boost GDP even further.
In conclusion, while Latin America and the Caribbean confront substantial problems as a result of external geopolitical factors, the anticipated 2.4% growth rate for 2025 provides some hope.
The region’s reliance on domestic consumption as a development driver demonstrates its adaptability, but it also raises concerns about long-term economic stability in the face of volatile global conditions.
Moving forward, policymakers must be alert and aggressive to properly leverage domestic strengths and mitigate external dangers.
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