Latin America's Shifting Demographics Could Undercut Growth

IMF Blog, April 23, 2024

Source details

Latin America’s workforce grew by nearly 50 percent in the two decades before the pandemic, helping boost economic growth.
We expect growth in Latin America to average about 2 percent per year in the next five years, below its already low historical average.
Projections for other emerging market economies are: 3 percent annually for those across Europe and 6 percent annually for those across Asia.
The weaker outlook partly reflects long-standing challenges of low investment and slow productivity growth, compounded by turning demographics.

Population growth will continue decelerating, falling from about 1 percent per year in the two decades preceding the pandemic to about 0.6 annually in the next five years.
The demographic dividend is fading as the region’s population is aging and the share of the working-age population is peaking.
The share of the population able to generate income will stop growing; this share had been growing until now, enabling the labor force to grow 0.5 percent per year since 2000.
We expect no growth in the share of working-age population over the next five years, on average.
A larger population increases revenues to repay high debt levels, but does not automatically mean rising income per capita.

Female labor force participation is low: 52 percent of working-age women compared to 75 percent of men.
Policy actions suggested:
- Expand childcare programs.
- Provide more training for women.
- Ensure household taxation does not discourage secondary household earners.
- Eliminate asymmetric childcare and parental leave benefits between men and women that discourage hiring of women or affect their pay.
- Provide vocational training opportunities.
- Raise the retirement age and eliminate disincentives for work after retirement.
- Adopt policies that facilitate employment of older workers.
- Tackle crime, an important factor behind migrant outflows in some parts of the region.

As demographics become less favorable, countries will need to put more effort into raising labor productivity growth by:
- Tackling poor governance.
- Reducing stringent business regulations.
- Addressing widespread informal work that constrains firms’ growth and associated productivity gains.
Raising productivity will help raise living standards even amid demographic headwinds.

Latin America’s strengthened macroeconomic frameworks helped countries navigate recent global recessions and avoid a repeat of past crises.
With demographic fortunes turning, countries must leverage this resilience to focus on boosting potential growth through higher participation (especially of women and older workers) and productivity-enhancing reforms.

Gustavo Adler and Rodrigo Valdés; April 23, 2024.

background-paper-3-en
- background-paper-3-en (Markdown version)
- background-paper-3-en (PDF)