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How to counter three threats to growth in Latin Am

# Regional Focus

How to counter three threats to growth in Latin Am

Latin American economies have posted average annual GDP growth of 3 percent over the past 15 years, far slower than growth in other developing regions. And almost 80 percent of Latin America’s GDP growth during this period came from population growth rather than productivity (exhibit). Between 2000 and 2015, productivity across the region grew at only 0.6 percent, one of the weakest performances of any region in the world. Without higher productivity, growth is set to come under threat from three disruptive forces hitting at once.

Productivity growth has been weak in Latin America; most of its GDP growth comes from employment growth.

The first disruption is that the fertility rate in Latin America has plunged in the past 15 years, from nearly 2.7 births per woman on average to 2.1 births. Between 2015 and 2030, the rate of employment growth is expected to more than halve, falling to only 1.1 percent a year. With unchanged productivity growth, this implies that GDP growth in Latin America will be 40 percent weaker over the next 15 years than it was in the previous 15.

The second is the end of the commodity supercycle, which had fueled GDP growth, particularly in the Andes region. Latin America will continue to benefit from its abundant resources, but the current context requires a shift toward producing and using those resources more efficiently.

The third disruptive force is the risk of rising protectionism after decades of declining trade barriers. Protectionism in the United States is of particular concern because that country is the destination for 45 percent of Latin American exports.

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