Regional Economic Outlook, Western Hemisphere, October 2024: Rebalancing Policies and Pressing on with Reforms
Regional Economic Outlook, October 2024
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- Published: October 25, 2024
Growth, inflation, and convergence
- After successfully weathering a series of shocks, most countries in the region are converging to their (tepid) potential.
- Growth is expected to moderate in late 2024 and 2025.
- Inflation is projected to continue easing, although gradually.
- Output gaps are mostly closed and inflation is near target in most cases.
Policy mix: rebalancing fiscal and monetary policy
- With output and inflation gaps mostly closed but monetary policy still contractionary and public finances in need of strengthening, a further rebalancing of the policy mix is necessary.
- Fiscal policy:
- Fiscal consolidation should advance without delay to rebuild buffers while protecting priority public investment and social spending.
- Strengthening fiscal frameworks will be of paramount importance to maintain debt on a sustainable path given an unfavorable interest rate-growth (‘r-g’) differential.
- Monetary policy:
- Most central banks are well placed to proceed with monetary easing.
- Easing should strike a balance between fending off the risk of reemerging price pressures and avoiding an undue economic contraction.
- Combined effects:
- Fiscal consolidation that protects investment and social spending would support the normalization of monetary policy and strengthen credibility and resilience of policy frameworks.
Medium-term outlook and risks
- Medium-term growth is expected to remain close to its low historical average.
- Key structural constraints driving low medium-term growth include:
- Low investment and productivity growth.
- Shifting demographics.
- A notably thin ongoing reform agenda that could lead to a vicious circle of low growth, social discontent, and populist policies.
- Priority cross-cutting governance improvements:
- Strengthening the rule of law.
- Enhancing government effectiveness.
- Tackling crime.
Structural reform priorities to boost potential growth
- Boost capital accumulation:
- Improve the business environment.
- Foster competition.
- Increase international trade.
- Implement greater and more effective public investment.
- Labor market and demographic responses:
- Maintain a dynamic labor force and increase productivity by tackling informality and making formal labor markets more flexible, including to adapt to new technologies.
- Increase female labor participation to help boost the labor force and offset demographic shifts.
- Specific labor-market policy recommendations highlighted in accompanying analysis ("Closing the Gap: Labor Market Participation in Latin America"):
- Improve the availability and affordability of childcare.
- Eliminate asymmetries in parental benefits.
- Make work schedules more flexible.
- Incentivize the elderly to remain active longer.
- More effectively integrate youth into the workforce.
Public debt dynamics and fiscal sustainability (Latin America focus)
- Understanding drivers of public debt is paramount to assessing fiscal sustainability risks.
- The paper "Public Debt Dynamics in Latin America: Time to Rebuild Buffers and Strengthen Fiscal Frameworks" finds:
- Drivers of debt changed substantially over the last two decades.
- Forces that drove debt down during the commodity price boom reversed once it ended—growth decelerated, and public finances weakened substantially despite compliance with fiscal rules.
- With many of these forces still at play, maintaining debt on a sustainable path will require strong fiscal discipline.
Regional Economic Outlook, Western Hemisphere, October 2024: Rebalancing Policies and Pressing on with Reforms
Content in this bundle
- Anexo On-line 1. O setor bancário em um ambiente de juros altos na América Latina
- Anexo On-line 3. Choques climáticos e migração transfronteiriça na América Latina e no Caribe
- Anexo On-line 4. A criminalidade e suas consequências macroeconômicas na América Latina e no Caribe
- Anexo On-line 4. A criminalidade e suas consequências macroeconômicas na América Latina e no Caribe
- Western Hemisphere Regional Economic Outlook; Background Paper 1; October 2024
- backgroundpaper2
- Western Hemisphere Regional Economic Outlook; Online Annex 1; October 2024
- Western Hemisphere Regional Economic Outlook; Online Annex 2; October 2024
- Western Hemisphere Regional Economic Outlook; Online Annex 3; October 2024
- Western Hemisphere Regional Economic Outlook; Online Annex 4; October 2024
- Western Hemisphere Regional Economic Outlook; Online Annex 5; October 2024
- Western Hemisphere Regional Economic Outlook; Online Annex 6; October 2024
- Western Hemisphere Regional Economic Outlook; Board Presentation; October 2024
- Full Report