## Rebalancing Policies and Pressing on with Reforms

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---

### Recent Developments
- Presentation date and author:
  - OCTOBER 16, 2024
  - Rodrigo Valdés, Director
- Growth and demand composition:
  - Growth has moderated post pandemic and plateaued in recent quarters.
  - LA7: Contributions to Real GDP Growth shown as year-over-year percent change (seasonally adjusted). LA7 = Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay.
  - Actual and Potential Real GDP indexed to 2029 = 100 (purchasing-power-parity GDP-weighted averages).
  - Increasing reliance on private consumption amid stagnant investment.
  - Real Investment and Real Consumption indexed to 2019Q4 = 100 (aggregate PPP-weighted average; LA7).
  - Investment stalled after the rebound from the pandemic; consumption remains robust.
- Investment and sectoral dynamics:
  - Investment slowdown is broad-based, especially in manufacturing (except Mexico) and residential construction.
  - Selected LA7 Economies: Contributions to Private Gross Fixed Capital Formation Growth by Economic Activity (year-over-year percent change; 4-quarter moving average).
  - Construction activity includes residential construction.
- External environment and trade:
  - External environment is muted.
  - Commodity Prices Deflated by US CPI indexed to January 2020 = 100 (12-month moving average): Oil, Copper, Iron ore, Soybeans series shown.
  - LA7: Net Capital Inflows measured as Percent of GDP; four-quarter moving average; capital flows dominated by FDI and broadly unchanged.
  - Trade structure resilient to geopolitical tensions.
  - LA7: Export Intensity Index by Trading Partners and LA7: Share of Merchandise Trade (Percent of world) indicate rising trade with China reflects a long-term trend.
- Labor market and wages:
  - Unemployment Rate (Percent) at historically low levels for LA7 countries.
  - LA7: Real Wage, Productivity, and Unit Labor Cost indexed to 2019Q4 = 100 show real wages have outpaced productivity, contributing to rising labor costs.
- Financial sector and credit:
  - LA7: Deposit Takers Financial Indicators show banks' balance sheets remained healthy despite high interest rates (indicators include CAR, liquidity, NIM, NPL, ROA, ROE).
  - LA7: Real Credit Growth (year-over-year percent change) shows resilient, consumer-driven credit growth with categories: Corporate, Consumer/Households, Mortgage.
- Inflation dynamics:
  - Headline and core inflation have been receding since mid/end-2022, but services inflation has remained elevated.
  - LA7: Contributions to Headline Inflation (year-over-year percent change) components: Core goods, Core services, Energy, Food, Headline.
  - LA7: Produce Price and Imported Inflation series include Import price index (US$), Exchange rate, Import price index (LC), Domestic PPI.
- Regional snapshots:
  - The Caribbean: economic momentum has slowed; inflation moderated but shows some stickiness. Tourist arrivals approached pre-pandemic levels for tourism-dependent countries.
  - CAPDR (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama): Growth robust while inflation is slowing; contributions to real GDP growth include Private consumption, Public consumption, Investment, Net exports, Inventories.

### Near-term Outlook and Risks
- Growth projections (Real GDP Growth, year-over-year percent change) by subregion:
  - 2023: Latin America and the Caribbean 2.2; LAC excluding Argentina and Venezuela 2.6; LA7 2.4; Other South America -0.1; CAPDR 4.1; Caribbean: Tourism dependent 3.0; Caribbean: Non-tourism dependent 10.0
  - 2024: Latin America and the Caribbean 2.1; LAC excluding Argentina and Venezuela 2.6; LA7 2.4; Other South America -1.8; CAPDR 3.8; Caribbean: Tourism dependent 2.8; Caribbean: Non-tourism dependent 16.5
  - Difference from April 2024 vintages: values provided per subregion (e.g., Latin America and the Caribbean 0.1; LAC excluding Argentina and Venezuela 0.2; etc.).
  - 2025: Latin America and the Caribbean 2.5; LAC excluding Argentina and Venezuela 2.2; LA7 2.0; Other South America 4.0; CAPDR 3.8; Caribbean: Tourism dependent 2.4; Caribbean: Non-tourism dependent 7.1
  - Difference from April 2024 vintages for 2025 reported (e.g., Caribbean: Non-tourism dependent -2.2).
- Inflation projections (End-of-period Inflation, year-over-year percent change) by subregion:
  - 2023: Latin America and the Caribbean 17.2; LAC excluding Argentina 4.7; LA7 5.0; Other South America 139.1; CAPDR 2.7; Caribbean: Tourism dependent 4.3; Caribbean: Non-tourism dependent 11.5
  - 2024: Latin America and the Caribbean 13.2; LAC excluding Argentina 4.3; LA7 4.4; Other South America 95.5; CAPDR 3.0; Caribbean: Tourism dependent 3.5; Caribbean: Non-tourism dependent 9.1
  - Difference from April 2024 vintages for 2024 provided (e.g., Latin America and the Caribbean 0.5).
  - 2025: Latin America and the Caribbean 6.9; LAC excluding Argentina 3.3; LA7 3.3; Other South America 33.5; CAPDR 3.3; Caribbean: Tourism dependent 3.1; Caribbean: Non-tourism dependent 7.6
  - Difference from April 2024 vintages for 2025 provided (e.g., Latin America and the Caribbean 0.4).
- Risks:
  - Downside risks to growth dominate; upside risks to inflation have risen somewhat.
  - Growth and Inflation Risks by LAC Subregion presented as percent share of total number of LAC countries with categories: Balanced, Tilted to the downside, Tilted to the upside.
  - LAC: Growth and Inflation Risk comparisons between April 2024 and October 2024 show shifts in tilt distributions for Growth and Inflation.

### Medium-term Outlook
- Growth and demographic headwinds:
  - Medium-term growth expected to remain lackluster, partly reflecting demographic headwinds.
  - Contributions to Real GDP Growth (year-over-year percent change) and Contributions to Labor Growth (year-over-year percent change) presented for periods 2000–19 and 2024–29 with components: Total factor productivity, Labor, Capital stock; and Population, Demographics, Labor force participation, Employment rate.
- Capital accumulation and productivity:
  - Tepid prospects for capital accumulation and productivity.
  - Real Capital Stock Growth (Percent) and Public Gross Fixed Capital Formation (Percent of GDP; 3y moving average) show investment expected to remain low, partly reflecting low public investment.
  - Total Factor Productivity Relative to the United States (Percent) expected to remain stagnant unlike in peers (EM Asia, EM Europe).
  - Comparative series cover LA7, EM Asia, EM Europe.

### Rebalancing the Policy Mix
- With closed output gaps, efforts to rebuild fiscal buffers should proceed.
- General Government Gross Debt presented as Percent of GDP (aggregates are medians).
- Emphasis on rebalancing policies and pressing on with reforms given growth near potential, muted investment, and medium-term headwinds.

### Public debt dynamics and fiscal consolidation
- Debt trajectory:
  - Public debt is projected to remain elevated following a pre-pandemic buildup.
  - The region faces unfavorable debt dynamics due to low growth and high financing costs.
- Drivers of debt change:
  - Decomposition of Public Debt Changes (Average 2024–29; percentage points of GDP) highlights contributions from:
    - Real interest rate
    - Real GDP growth
    - Primary deficit
    - Exchange rate
    - Residual
    - Change in public debt
  - Aggregates are medians or simple averages as noted in source figures.
- Regional groupings used in charts:
  - LAC = Latin America and the Caribbean (excl. ARG/VEN)
  - LA7 = Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay
  - CAPDR = Central America, Panama, and the Dominican Republic
  - CARIB = Caribbean
  - EM Asia = India, Indonesia, Malaysia, Philippines, Thailand, Vietnam (or India, Indonesia, Malaysia, Philippines, Thailand in other notes)
  - EM Europe = Bosnia and Herzegovina, Bulgaria, Hungary, Poland, Romania, Serbia

### Fiscal policy: consolidation, frameworks, and tax revenue
- Policy guidance:
  - Fiscal consolidation should advance without further delays and be accompanied by measures to strengthen fiscal frameworks and revenue mobilization.
- Tax revenue and targets:
  - Tax Revenue Collection is presented in percent of GDP; emphasis placed on raising tax revenue from currently low levels.
  - Fiscal Targets for Budget Balance Rules (Percent of GDP): country-specific targets noted:
    - Brazil has a primary balance fiscal target.
    - Chile and Colombia have structural balance fiscal targets.
    - Peru and Paraguay have an overall balance target.
  - LA7: General Government Structural Primary Balance (Percent of potential GDP) trajectories are shown for 2023–2029 with comparisons to October 2024 WEO and October 2023 WEO.

### Monetary policy: easing, real rates, and inflation expectations
- Policy stance:
  - Monetary easing should continue in most countries given still-high real rates and near-target inflation.
  - Although most central banks have moved forward with monetary easing, real policy rates remain restrictive.
- Metrics and observations:
  - LA5 = Latin America (Brazil, Chile, Colombia, Mexico, Peru) aggregates used for comparisons.
  - Charts and metrics presented include:
    - Monetary Policy Rates (Nominal; percent) time series (Jan-19 to Jul-24) for Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay, United States.
    - LA5: Headline Inflation and Ex-ante Real Monetary Policy Rate Across Inflation Episodes (percentage points); historical episodes defined as when headline inflation rises above the target by 2 percentage points and returns within 2 percentage points in under 2 years, since adoption of inflation targeting. Current episode excludes Colombia.
    - Real Ex-Ante Monetary Policy Rates and "Terminal Rate" Estimates (Percent): comparisons of Historical (full sample, 2001–19), pre-pandemic (2017–19), Current (August 2024), End-2025 market expectation, and End-2026 market expectation.
    - LA7: Distribution of One-Year-Ahead Inflation Expectations by Forecasters (Percentage points; deviation from inflation target) — density plots of one-year-ahead (December-over-December) inflation forecast deviation from inflation targets by Consensus Forecasts vintage. Paraguay and Uruguay excluded due to data limitations.
  - Key observations:
    - Market expectations for terminal policy rates point to higher levels than those prevailing before the pandemic.
    - Inflation expectations are not-yet-fully re-anchored.
    - Policymakers should remain mindful of uncertainty about neutral rates and upside risks to inflation.

### Structural impediments and reform priorities
- Thematic areas:
  - Structural impediments cloud the medium-term outlook across six thematic areas: LABOR MARKETS, PRODUCT AND CREDIT MARKETS, FISCAL, TRADE, GOVERNANCE, and others.
- Identified impediments (verbatim):
  - Skills mismatch
  - Inadequate active labor market policies
  - Rigid employment protection
  - Labor mobility and migration restrictions
  - Gender discrimination
  - High tax wedge
  - Inadequate unemployment benefits
  - Rigid collective bargaining frameworks
  - Barriers to access to credit
  - Barriers to entry and exit of firms
  - Inadequate government involvement
  - Inadequate competition policies
  - Poor contract enforcement, consumer protection, and creditor rights protection
  - Inadequate trade infrastructure and/or customs
  - Non-tariff barriers to trade in goods
  - Tariff barriers to trade in goods
  - Services trade restrictiveness
  - Poor public investment management
  - Distortionary tax policy
  - Inadequate social spending
  - Inefficient revenue administration
  - Inadequate fiscal rule
  - Weak fiscal transparency
  - Energy subsidies
  - Distortionary policies for green transition
  - Government ineffectiveness
  - Inadequate control of corruption
  - Weak rule of law
  - Political instability and violence/terrorism
  - Weak voice and accountability
- Recommended reforms (grouped as in source):
  - Cross-cutting reforms
    - Strengthen enforcement of contracts and property rights
    - Enhance independence, efficiency and credibility of justice system
    - Tackle corruption through robust legal anti-corruption framework, reduce fragmentation of anti-corruption agencies
    - Enhance government effectiveness
    - Strengthen fiscal rules and predictability of fiscal policies
    - Eliminate tax distortions, strengthen tax administration and tackle evasion
  - Reforms to mitigate demographic headwinds and boost productivity
    - Tackle informality by incentivizing formalization through social benefits and tax policies (especially SMEs)
    - Address skill mismatch, by improving vocational training and youth education
    - Increase female labor participation
    - Reduce non-wage labor costs
    - Strengthen employment protection
  - Reforms to foster capital accumulation
    - Simplify business entry and exit by facilitating licensing and permits and swifter bankruptcy procedures
    - Strengthen competition policies
    - Foster trade integration by improving trade-related infrastructure
    - Strengthen public investment management systems
    - Strengthen management and accountability of public utility companies
    - Implement climate mitigation and adaptation policies, and foster green transition

### New challenges and opportunities: climate change and AI
- Simulation scenarios and impacts:
  - Simulation Scenarios (Average growth; percent) presented to assess policy impacts (source: Bakker and others, forthcoming).
- Climate change:
  - Impact on Output with and without Adaptation by 2050 under the "Hot World" Scenario (Percent; relative to no climate change) shows differences across regions:
    - Regions shown: Caribbean, CAPDR, South America, LAC
    - Adaptation reduces negative impacts relative to No adaptation.
  - Note: The “Hot World” scenario implies doubling CO2 emissions by 2100.
  - Adaptation policies are needed to mitigate the expected impact of climate change.
- AI:
  - Harnessing the benefits of AI will require investment in IT and education to foster faster adoption.

### Projections, outlook, and central messages
- Main messages (verbatim):
  - Most countries in the region are converging to their (tepid) potential, although from different cyclical positions.
  - Inflation has fallen considerably and is near target in most countries but showing stickiness.
  - With output and inflation gaps mostly closed, a further rebalancing of the policy mix is necessary.
  - Fiscal consolidation should advance without delay to rebuild buffers while protecting priority public investment and social spending. This will support monetary policy normalization and strengthen credibility and resilience of policy frameworks.
  - Most central banks are well placed to proceed with monetary easing, striking a balance between fending off the risk of reemerging price pressures and avoiding an undue economic contraction.
  - Medium-term growth is expected to remain subdued, reflecting long-standing, unresolved challenges—including low investment and productivity growth—as well as shifting demographics.
  - The ongoing reform agenda is thin and could lead to a vicious circle of low growth, social discontent, and populist policies.
  - Avoiding low-growth trap requires pressing on with reforms to foster all drivers of growth.

*IMF | Western Hemisphere Department - Regional Economic Outlook — presentation (Sections 1–2)*

### Section 1

### Rebalancing Policies and Pressing on with Reforms

### Recent Developments
- Presentation date and author:
  - OCTOBER 16, 2024
  - Rodrigo Valdés, Director
- Growth has moderated post pandemic and plateaued in recent quarters:
  - LA7: Contributions to Real GDP Growth shown as year-over-year percent change (seasonally adjusted). LA7 = Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay.
  - Actual and Potential Real GDP indexed to 2029 = 100 (purchasing-power-parity GDP-weighted averages).
- Composition of demand:
  - Increasing reliance on private consumption amid stagnant investment.
  - Real Investment and Real Consumption indexed to 2019Q4 = 100 (aggregate PPP-weighted average; LA7).
  - Investment stalled after the rebound from the pandemic; consumption remains robust.
- Investment slowdown is broad-based, especially in manufacturing (except Mexico) and residential construction:
  - Selected LA7 Economies: Contributions to Private Gross Fixed Capital Formation Growth by Economic Activity (year-over-year percent change; 4-quarter moving average).
  - Construction activity includes residential construction.
- External environment is muted:
  - Commodity Prices Deflated by US CPI indexed to January 2020 = 100 (12-month moving average): Oil, Copper, Iron ore, Soybeans series shown.
  - LA7: Net Capital Inflows measured as Percent of GDP; four-quarter moving average; capital flows dominated by FDI and broadly unchanged.
- Trade structure resilient to geopolitical tensions:
  - LA7: Export Intensity Index by Trading Partners and LA7: Share of Merchandise Trade (Percent of world) indicate rising trade with China reflects a long-term trend.
- Labor market and wages:
  - Unemployment Rate (Percent) at historically low levels for LA7 countries.
  - LA7: Real Wage, Productivity, and Unit Labor Cost indexed to 2019Q4 = 100 show real wages have outpaced productivity, contributing to rising labor costs.
- Financial sector and credit:
  - LA7: Deposit Takers Financial Indicators show banks' balance sheets remained healthy despite high interest rates (indicators include CAR, liquidity, NIM, NPL, ROA, ROE).
  - LA7: Real Credit Growth (year-over-year percent change) shows resilient, consumer-driven credit growth with categories: Corporate, Consumer/Households, Mortgage.
- Inflation dynamics:
  - Headline and core inflation have been receding since mid/end-2022, but services inflation has remained elevated.
  - LA7: Contributions to Headline Inflation (year-over-year percent change) components: Core goods, Core services, Energy, Food, Headline.
  - LA7: Produce Price and Imported Inflation series include Import price index (US$), Exchange rate, Import price index (LC), Domestic PPI.
- Regional snapshots:
  - The Caribbean: economic momentum has slowed; inflation moderated but shows some stickiness. Tourist arrivals approached pre-pandemic levels for tourism-dependent countries.
  - CAPDR (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama): Growth robust while inflation is slowing; contributions to real GDP growth include Private consumption, Public consumption, Investment, Net exports, Inventories.

### Near-term Outlook and Risks
- Growth projections (Real GDP Growth, year-over-year percent change) by subregion:
  - 2023: Latin America and the Caribbean 2.2; LAC excluding Argentina and Venezuela 2.6; LA7 2.4; Other South America -0.1; CAPDR 4.1; Caribbean: Tourism dependent 3.0; Caribbean: Non-tourism dependent 10.0
  - 2024: Latin America and the Caribbean 2.1; LAC excluding Argentina and Venezuela 2.6; LA7 2.4; Other South America -1.8; CAPDR 3.8; Caribbean: Tourism dependent 2.8; Caribbean: Non-tourism dependent 16.5
  - Difference from April 2024 vintages: values provided per subregion (e.g., Latin America and the Caribbean 0.1; LAC excluding Argentina and Venezuela 0.2; etc.).
  - 2025: Latin America and the Caribbean 2.5; LAC excluding Argentina and Venezuela 2.2; LA7 2.0; Other South America 4.0; CAPDR 3.8; Caribbean: Tourism dependent 2.4; Caribbean: Non-tourism dependent 7.1
  - Difference from April 2024 vintages for 2025 reported (e.g., Caribbean: Non-tourism dependent -2.2).
- Inflation projections (End-of-period Inflation, year-over-year percent change) by subregion:
  - 2023: Latin America and the Caribbean 17.2; LAC excluding Argentina 4.7; LA7 5.0; Other South America 139.1; CAPDR 2.7; Caribbean: Tourism dependent 4.3; Caribbean: Non-tourism dependent 11.5
  - 2024: Latin America and the Caribbean 13.2; LAC excluding Argentina 4.3; LA7 4.4; Other South America 95.5; CAPDR 3.0; Caribbean: Tourism dependent 3.5; Caribbean: Non-tourism dependent 9.1
  - Difference from April 2024 vintages for 2024 provided (e.g., Latin America and the Caribbean 0.5).
  - 2025: Latin America and the Caribbean 6.9; LAC excluding Argentina 3.3; LA7 3.3; Other South America 33.5; CAPDR 3.3; Caribbean: Tourism dependent 3.1; Caribbean: Non-tourism dependent 7.6
  - Difference from April 2024 vintages for 2025 provided (e.g., Latin America and the Caribbean 0.4).
- Risk assessment:
  - Downside risks to growth dominate; upside risks to inflation have risen somewhat.
  - Growth and Inflation Risks by LAC Subregion presented as percent share of total number of LAC countries with categories: Balanced, Tilted to the downside, Tilted to the upside.
  - LAC: Growth and Inflation Risk comparisons between April 2024 and October 2024 show shifts in tilt distributions for Growth and Inflation.

### Medium-term Outlook
- Medium-term growth expected to remain lackluster, partly reflecting demographic headwinds:
  - Contributions to Real GDP Growth (year-over-year percent change) and Contributions to Labor Growth (year-over-year percent change) presented for periods 2000–19 and 2024–29 with components: Total factor productivity, Labor, Capital stock; and Population, Demographics, Labor force participation, Employment rate.
- Tepid prospects for capital accumulation and productivity:
  - Real Capital Stock Growth (Percent) and Public Gross Fixed Capital Formation (Percent of GDP; 3y moving average) show investment expected to remain low, partly reflecting low public investment.
  - Total Factor Productivity Relative to the United States (Percent) expected to remain stagnant unlike in peers (EM Asia, EM Europe).
  - Comparative series cover LA7, EM Asia, EM Europe.

### Rebalancing the Policy Mix
- With closed output gaps, efforts to rebuild fiscal buffers should proceed:
  - General Government Gross Debt presented as Percent of GDP (aggregates are medians).
  - Emphasis on rebalancing policies and pressing on with reforms given growth near potential, muted investment, and medium-term headwinds.

*IMF | Western Hemisphere Department - Regional Economic Outlook — presentation, Section 1*

### Section 2

### presentation - Section 2

### Public debt dynamics and fiscal consolidation
- Public debt is projected to remain elevated following a pre-pandemic buildup.
- The region faces unfavorable debt dynamics due to low growth and high financing costs.
- Decomposition of Public Debt Changes (Average 2024–29; percentage points of GDP) highlights contributions from:
  - Real interest rate
  - Real GDP growth
  - Primary deficit
  - Exchange rate
  - Residual
  - Change in public debt
- Aggregates are medians or simple averages as noted in source figures.
- Regional groupings used in charts:
  - LAC = Latin America and the Caribbean (excl. ARG/VEN)
  - LA7 = Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay
  - CAPDR = Central America, Panama, and the Dominican Republic
  - CARIB = Caribbean
  - EM Asia = India, Indonesia, Malaysia, Philippines, Thailand, Vietnam (or India, Indonesia, Malaysia, Philippines, Thailand in other notes)
  - EM Europe = Bosnia and Herzegovina, Bulgaria, Hungary, Poland, Romania, Serbia

### Fiscal policy: consolidation, frameworks, and tax revenue
- Fiscal consolidation should advance without further delays and be accompanied by measures to strengthen fiscal frameworks and revenue mobilization.
- Tax Revenue Collection is presented in percent of GDP; emphasis placed on raising tax revenue from currently low levels.
- Fiscal Targets for Budget Balance Rules (Percent of GDP): country-specific targets noted:
  - Brazil has a primary balance fiscal target.
  - Chile and Colombia have structural balance fiscal targets.
  - Peru and Paraguay have an overall balance target.
- LA7: General Government Structural Primary Balance (Percent of potential GDP) trajectories are shown for 2023–2029 with comparisons to October 2024 WEO and October 2023 WEO.

### Monetary policy: easing, real rates, and inflation expectations
- Monetary easing should continue in most countries given still-high real rates and near-target inflation.
- Although most central banks have moved forward with monetary easing, real policy rates remain restrictive.
- LA5 = Latin America (Brazil, Chile, Colombia, Mexico, Peru) aggregates used for comparisons.
- Charts and metrics presented include:
  - Monetary Policy Rates (Nominal; percent) time series (Jan-19 to Jul-24) for Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay, United States.
  - LA5: Headline Inflation and Ex-ante Real Monetary Policy Rate Across Inflation Episodes (percentage points); historical episodes defined as when headline inflation rises above the target by 2 percentage points and returns within 2 percentage points in under 2 years, since adoption of inflation targeting. Current episode excludes Colombia.
  - Real Ex-Ante Monetary Policy Rates and "Terminal Rate" Estimates (Percent): comparisons of Historical (full sample, 2001–19), pre-pandemic (2017–19), Current (August 2024), End-2025 market expectation, and End-2026 market expectation.
  - LA7: Distribution of One-Year-Ahead Inflation Expectations by Forecasters (Percentage points; deviation from inflation target) — density plots of one-year-ahead (December-over-December) inflation forecast deviation from inflation targets by Consensus Forecasts vintage. Paraguay and Uruguay excluded due to data limitations.
- Key observations:
  - Market expectations for terminal policy rates point to higher levels than those prevailing before the pandemic.
  - Inflation expectations are not-yet-fully re-anchored.
  - Policymakers should remain mindful of uncertainty about neutral rates and upside risks to inflation.

### Structural impediments and reform priorities
- Structural impediments cloud the medium-term outlook across six thematic areas: LABOR MARKETS, PRODUCT AND CREDIT MARKETS, FISCAL, TRADE, GOVERNANCE, and others.
- Identified impediments (verbatim list from source):
  - Skills mismatch
  - Inadequate active labor market policies
  - Rigid employment protection
  - Labor mobility and migration restrictions
  - Gender discrimination
  - High tax wedge
  - Inadequate unemployment benefits
  - Rigid collective bargaining frameworks
  - Barriers to access to credit
  - Barriers to entry and exit of firms
  - Inadequate government involvement
  - Inadequate competition policies
  - Poor contract enforcement, consumer protection, and creditor rights protection
  - Inadequate trade infrastructure and/or customs
  - Non-tariff barriers to trade in goods
  - Tariff barriers to trade in goods
  - Services trade restrictiveness
  - Poor public investment management
  - Distortionary tax policy
  - Inadequate social spending
  - Inefficient revenue administration
  - Inadequate fiscal rule
  - Weak fiscal transparency
  - Energy subsidies
  - Distortionary policies for green transition
  - Government ineffectiveness
  - Inadequate control of corruption
  - Weak rule of law
  - Political instability and violence/terrorism
  - Weak voice and accountability
- Recommended reforms (grouped as in source):
  - Cross-cutting reforms
    - Strengthen enforcement of contracts and property rights
    - Enhance independence, efficiency and credibility of justice system
    - Tackle corruption through robust legal anti-corruption framework, reduce fragmentation of anti-corruption agencies
    - Enhance government effectiveness
    - Strengthen fiscal rules and predictability of fiscal policies
    - Eliminate tax distortions, strengthen tax administration and tackle evasion
  - Reforms to mitigate demographic headwinds and boost productivity
    - Tackle informality by incentivizing formalization through social benefits and tax policies (especially SMEs)
    - Address skill mismatch, by improving vocational training and youth education
    - Increase female labor participation
    - Reduce non-wage labor costs
    - Strengthen employment protection
  - Reforms to foster capital accumulation
    - Simplify business entry and exit by facilitating licensing and permits and swifter bankruptcy procedures
    - Strengthen competition policies
    - Foster trade integration by improving trade-related infrastructure
    - Strengthen public investment management systems
    - Strengthen management and accountability of public utility companies
    - Implement climate mitigation and adaptation policies, and foster green transition

### New challenges and opportunities: climate change and AI
- Simulation Scenarios (Average growth; percent) presented to assess policy impacts (source: Bakker and others, forthcoming).
- Climate change:
  - Impact on Output with and without Adaptation by 2050 under the "Hot World" Scenario (Percent; relative to no climate change) shows differences across regions:
    - Regions shown: Caribbean, CAPDR, South America, LAC
    - Adaptation reduces negative impacts relative to No adaptation.
  - Note: The “Hot World” scenario implies doubling CO2 emissions by 2100.
  - Adaptation policies are needed to mitigate the expected impact of climate change.
- AI:
  - Harnessing the benefits of AI will require investment in IT and education to foster faster adoption.

### Projections, outlook, and central messages
- Main messages (verbatim from source):
  - Most countries in the region are converging to their (tepid) potential, although from different cyclical positions.
  - Inflation has fallen considerably and is near target in most countries but showing stickiness.
  - With output and inflation gaps mostly closed, a further rebalancing of the policy mix is necessary.
  - Fiscal consolidation should advance without delay to rebuild buffers while protecting priority public investment and social spending. This will support monetary policy normalization and strengthen credibility and resilience of policy frameworks.
  - Most central banks are well placed to proceed with monetary easing, striking a balance between fending off the risk of reemerging price pressures and avoiding an undue economic contraction.
  - Medium-term growth is expected to remain subdued, reflecting long-standing, unresolved challenges—including low investment and productivity growth—as well as shifting demographics.
  - The ongoing reform agenda is thin and could lead to a vicious circle of low growth, social discontent, and populist policies.
  - Avoiding low-growth trap requires pressing on with reforms to foster all drivers of growth.

*IMF | Western Hemisphere Department - Regional Economic Outlook (presentation - Section 2)*

---


_Source: https://www.imf.org/-/media/files/publications/reo/whd/2024/october/english/presentation.pdf_