What is the main factor affecting Latin America´s slow GDP growth?

The primary factor impacting Latin America´s underperformance of GDP growth is low investment. The rate of investment growth on the region has been structurally slowing for a long time. In the last 10 years, before the pandemic, it averaged less than 0.5% annually. In emerging markets, on average, it grows 5%, so 10x higher than in Latin America.

Figure 1: GDP per capita in the major Latin American economies in relation to the U.S.

Have we recovered from the pandemic? Look at the household perspective, assessing employment levels.

Looking at the employment, it is possible to understand the real feel of how the recovery from the pandemic is being seen from the household perspective. In the region, on average, it's 5% below its pre-pandemic level, meaning that roughly 1 in 20 workers have not recovered their job. Even though there's people that have returned to their jobs, a lot of them are working less hours. Lack of investment and high unemployment rates create a challenging social and political environment, so full recovery from the damage done by the pandemic will be hard to achieve.

Figure 2: Current employment gap versus its pre-pandemic trend.

What are the key risks to Latin America´s growth?

Global financial conditions, inflation, supply-chain disruption, and China´s slow growth are considered to be affecting Latin America´s growth to a great extent. Starting with inflation, many commodity producers may benefit from higher prices in the region, but consumers will pay the price through higher inflation. The combination of fuel and electricity is the main driver of inflation.

About half of all the CPI year-over-year that we've seen recent months comes from energy. Looking at food, it's 2/3 of all inflation. In terms of supply-chain, Mexico and Brazil are two of the biggest auto hubs in the region. In both cases, they are producing roughly 20% less autos than before the pandemic. Certain metals like nickel, that are input to auto production, are produced in Russia and Ukraine. From a supply management perspective, there are reasons to be concerned as these disruptions could persist.

What is the impact of the steel markets in several Latin American countries that have a high dependence on Russian commodities?

The impact will depend on the evolution of global demand because we can have higher prices, but we can also have lower demand for those goods. Additionally, the policy reaction is highly important to consider.

Several governments in the region are moving towards containing the inflationary impact of higher commodity prices through fiscal policy or trade policy. In Brazil and Mexico, there's obviously a move towards lowering the taxes on gasoline, which will help prevent higher gasoline prices than they would be otherwise. In places like Colombia, they're reducing tariffs on imported food, which helps domestic prices as well.

But the longer that these policies are in place, the higher the long-term implications to growth that we will have.