Latin America and the Caribbean face another year of lacklustre economic performance, with growth projected at just 2.2 per cent in 2024 and 2.4 per cent in 2025, according to a report by the UN's regional economic commission, which also warned of mounting risks from potential US protectionist measures.

During the presentation of the "Preliminary Overview of the Economies of Latin America and the Caribbean 2024," José Manuel Salazar-Xirinachs, Executive Secretary of the Santiago-based Economic Commission for Latin America and the Caribbean (ECLAC), cautioned that proposed tariffs by US president-elect Donald Trump could significantly impact regional economies, with Mexico particularly vulnerable given its deep economic integration with the US. The commission estimates that even a 10 per cent tariff, rather than the proposed 25 per cent, could reduce Mexico's GDP by up to one percentage point.

Salazar-Xirinachs noted that Central American nations face a double threat from potential trade barriers and reduced remittances if mass deportations materialise. South American economies are considered less exposed, with their primary trading relationships focused on China and the European Union.

ECLAC's latest economic overview highlights a concerning trend where growth continues to be primarily driven by private consumption rather than investment. Labour markets across the region show particularly worrying signs, with employment growth forecast at just 1.7 per cent in 2024—the lowest rate since the COVID-19 pandemic.

Despite some bright spots in the inflation outlook, with regional median inflation expected to ease to 3.4 per cent in 2024 from 3.7 per cent in December 2023, fiscal challenges loom large. The commission pointed to a troubling combination of weak GDP growth, elevated financing costs and currency volatility as key risks to fiscal sustainability.

“Inflation expectation surveys indicate that inflation in several countries, including Brazil, Colombia, Mexico and Peru, will remain higher than the targeted levels for the next 24 months. This suggests that future downward adjustments in monetary policy will continue to reflect a cautious stance conditioned by the risk of exchange-rate devaluations,” the report said.

To break free from this low-growth trap, ECLAC has outlined a series of "new-generation" policies focused on productive transformation. These include strengthening domestic public finances through better tax collection and progressivity, while leveraging global value chains for economic diversification. The commission has identified 14 key sectors across industry, services and sustainability, singling out environmental sustainability, digitalisation and corporate financing as primary drivers for growth.

In another recent report, jointly produced by the OECD, UN-ECLAC, CAF-Development Bank and European Commission, the region is urged to strengthen tax collection and private sector involvement to bridge a staggering $99bn annual sustainable financing gap. To this extent, the study called for sweeping reforms across the region's fiscal and financial systems at a time when many Latin American countries are struggling with tight monetary policy and reduced fiscal space.

Looking ahead, ECLAC projects varying growth rates across the region, with South America expected to grow by 2.6 per cent in 2025, matching the Caribbean's forecast (excluding Guyana), while Central America is predicted to expand by 2.9 per cent.

The persistent challenge of informal employment remains stark, with the regional average expected to hover at 46.7 per cent, marking only a marginal improvement from 2023 levels.

The commission also warned that protectionist measures floated by Trump could have unintended consequences for the US economy itself, potentially stoking inflation through higher import prices and labour shortages.