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In our fourth webinar of the “Perspectivas América Latina” series, we assessed macroeconomic and sustainability factors affecting the region, including emerging trends, risks and challenges to growth, and key opportunities.

How is the Latin American region doing in terms of GDP growth?

The region's GDP growth is slowing down. The growth percentage is going from roughly 3% - 3.5% in 2022 to approximately 1% this year and then recovering to its traditionally low growth rate of between 2% and 2.5%. Latin America will continue to underperform the rest of the world as the other regions grow around 3.5%, and emerging markets grow closer to 4%.

Figure 1: GDP Growth %

What are some of the current sustainability challenges?

Energy security and affordability concerns are one of the main sustainability challenges in 2023. The Russia-Ukraine war contributed to record prices and supply disruptions, and companies will face the risks of financing the energy transition in the long term on the one hand and the other hand, energy security and affordability in the shorter term. In this context, the Paris agreement's goals to limit global warming may be at risk.

Also, there are rising costs from physical climate risks. In this case, according to the World Meteorological Organization, there was a fivefold increase in climate-related disasters over a period of 50 years, and this affects low-income countries in particular, which are less ready to cope with these issues.

Additionally, there are biodiversity and nature-related risks as biodiversity has declined, affecting the world's natural capital. And this is a result of changes in land use and climate and the need for transformative approaches.

What is one of the key opportunities for Latin America?

The region, because of its geographical closeness to the U.S. could benefit significantly from near-shoring. Still, there are also a lot of challenges that could prevent near-shoring from fully materializing to its full extent in Mexico.

Some are energy provisions to supply the manufacturing production needs; there are concerns about the amount of water you need for some production sites in the north. And lastly, security needs.

Figure 2: Imports from China, % of GDP

What are some of the sustainability challenges that being addressed can provide companies with unique opportunities?

We can reconsider climate strategies in the face of energy risks. It is important to keep the investment momentum, especially in transition technologies, and take advantage of some countries' clean energy packages and incentives. But, indeed, this is mainly in countries like the U.S. or Europe.

Also, we can invest in adaptation and resilience in the face of physical climate risks. So coupled with the climate transition, resilience is necessary to protect lives, assets, and productive capacity. There is also a growing interest in innovative financial instruments like the debt-for-climate swaps, where debtor countries divert payments into adaptation and resilience projects or bonds.

Furthermore, we can assess the social and financial costs of water-related risks. This is relevant, especially for utilities, oil and gas, and agribusiness sectors.