ECLAC: “We are ending the second lost decade”

It is not a secret that the region is experiencing a bitter pill in terms of economic growth. Although this accelerated in the first half of the year, in the second there was a slowdown that was accompanied by an increase in inflation and financial volatility, a trend that is expected to continue in 2023.

This was reported by José Manuel Salazar-Xirinachs, executive secretary of ECLAC, last Thursday during the presentation of the Preliminary Balance of the Economies of Latin America and the Caribbean 2022. According to the Balance, the percentage decline in growth is alarming; The region grew 3.7% in 2022, almost half the 6.7% that was in 2021, and in 2023 the slowdown will cause a growth of only 1.7%. Haiti and Paraguay would be the only two countries in the region to enter a recession with 2% and 0.3% respectively. One of the things that drew the most attention during the presentation was that Salazar-Xirinachs assured that if these prospects for 2023 were to be fulfilled, the region would enter its third lost decade since the 1950s. The first would be the year 80, a decade in which the economy grew only 2%, for Salazar-Xirinachs the second was 2010. “Here it is not about whether we are going to have a second lost decade. We are ending the second lost decade […] The question is if we are going to have a third, what will happen between now and 2030”, pronounced the secretary.

Why are we in another lost decade?

The Balance also explores the reasons why this decade could be considered lost. 2022 started well for the region, and for a moment it was believed that the exponential growth of the first half of the year would demonstrate the front that was being made towards the 2020 pandemic. However, despite the reactivation of the economy, the challenges that have followed are not easy.

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In the first place, and the international context, the world economy itself is not going through a good moment either, the numbers of economic activity and world trade are going down. In addition, inflation has caused a tightening in monetary policy that has affected all regions simultaneously. Nor should we forget that the war in Ukraine and the uncertainty it generates has led central banks to reinforce said monetary policies. This, in turn, has caused a reduction in global liquidity, in which the US dollar also dominates as the international reserve currency.

Secondly, at a more regional level, the Balance indicates the reduction of financial flows to Latin America and, thanks to the aforementioned tightening of monetary policies, the region's debt issuance in international markets fell by 60%, which creates a risk aversion on the part of investors. The data show that the external financing needs would be 571,000 million dollars, meaning that the region should receive external financial flows around the same.

Added to all of the above, we find domestic prices, which have affected the interaction between supply and demand.