Latin America’s weak growth will not alleviate poverty, says World Bank

Latin America should maintain its low growth rate in the coming years, assesses a World Bank report released this Thursday (7th). The entity expects the economy of the region, including the Caribbean, to grow 2.3% in 2022, 2.2% in 2023 and 2.4% in 2024.

For Brazil, the bank predicts increases below the continent’s average, of 0.7% of GDP in 2022, 1.3% in 2023 and 2% in 2024. The country had an increase of 4.6% in 2021.

“Brazil is one of the hardest hit countries in recovering from the pandemic, perhaps in part because it has been hit especially hard by it,” said William Maloney, the World Bank’s chief economist for Latin America. The country has 660,000 deaths from Covid.

Maloney pointed out that the threat of fertilizer unavailability brought by sanctions on Russia and problems in global value chains could make the country’s recovery even more difficult.

Other major economies in the region are also expected to have modest growth, such as Argentina (3.6%), Chile (1.9%) and Mexico (2.1%). Guyana is expected to have the most development in the region, with a rate of 47.9% in 2022, due to the recent discovery of oil reserves. The World Bank did not make estimates for Venezuela.

The consequences of the war in Ukraine, such as rising fuel prices, led the bank to lower its growth forecast for the region by 0.4%. Ukraine is a major grain producer and restrictions on Russian exports of oil and metals are likely to push up commodity prices in the coming years. Despite this, Latin American countries may struggle to take advantage of this boom.

“While commodity prices remain strong, growth in China and advanced economies [como da Europa] is slower than before the pandemic – which lowers demand for exports from the region – and global interest rates are rising to long-term levels,” the report notes.

Thus, regional growth must remain below what is necessary to alleviate social inequality. “From 2010 to the beginning of 2020, LAC (Latin America and the Caribbean) grew 2.2% a year while the world grew at a rate of 3.1%. The forecasts for 2022 and 2023 are equally dismal and insufficient to alleviate the poverty or alleviate social tensions”, compares the report.

The bank estimates that the poverty rate in the region (excluding Brazil) rose to 27.5% in 2021, against 25.6% before the pandemic. And that the effects of the pandemic could be long-lasting: the loss of student learning due to school closures can cause them to lose 10% of their future income over their lifetime.

The report points out that the level of employment is close to returning to the pre-pandemic level, but that there is a greater presence of informal jobs, with lower income and less social protection. And that the return to the job market is being more difficult for women, young people and people over 54, as well as for workers with less training.

Other economic indicators generate concern, such as inflation. The World Bank warns that raising interest rates to contain the rise in prices carries the risk of slowing down the economic recovery and, therefore, needs to be done precisely. Another obstacle to recovery is the increase in public debt, which has been around 73% of GDP. This rise “will continue to hold back any large investments in capital or in increasing productivity”, considers the entity.

As a solution, the bank recommends “aggressive reforms” in education, infrastructure and innovation to boost growth rates. It also indicates that countries limit their public spending, cutting waste and embezzlement, which consume 4.4% of local GDP.

Another path that can boost the region’s growth is to take advantage of the possibilities of energy transition. The region contributes only 8% of the planet’s greenhouse gases and has several good examples of the use of clean energy, such as hydroelectric power.

“LAC has tremendous green advantages that provide opportunities for new industries and exports. It has vast potential in renewable energy, large reserves of lithium and copper used in green technologies, and rich natural capital, all of which are of increasing value in a world where global warming and energy security are moving to center stage,” Maloney said.

However, climate change brings risks if there are no adaptations. The bank estimates that between 2.5 million and 5 million people could be pushed into extreme poverty by problems generated by climate change, such as prolonged droughts.