Opinion: New forecasts say Latin America economy will worsen in 2024, but there’s more bad news
The world’s two most important financial institutions have just released their economic forecasts for Latin America, and they project a slower than expected growth for the region in 2024. But that may be the least worrisome part of what they’re saying.
What I found even more troubling while reading the just-released reports of the International Monetary Fund (IMF) and
World Bank was that, due to the ideological blindfolds of many of its leaders, the region is missing out on what could be its best opportunity in recent history to become a world economic success story and drastically reduce poverty.
I’m talking about the “near-shoring” or “friendshoring” trend, whereby U.S. multinationals are moving many of their production plants away from China and into friendlier or more reliable countries — if possible, close to their home markets.
No region in the world would be better positioned to take advantage of this trend than Latin America. But U.S. multinationals are mostly going to other parts of the emerging world, such as India and other Asian countries, the World Bank report says. That bodes badly for the region, the bank adds.
According to the IMF, Latin America and the Caribbean’s regional economy will grow by only 2% this year, below what it had grown last year. Brazil’s economy will expand by 2.2%, Mexico’s by 2.4%, Peru’s by 2.5%,Chile’s by 2%, Colombia’s by 1.1% and Argentina’s will decrease by 2.8%, it says.
Both international institutions say that Latin America will be the slowest growing region in the emerging world this year and next. The average growth for emerging markets will be 4.2%, they say.
So why is “near-shoring” such a big deal, you may ask? Because it’s a huge shift in world trade patterns, and because it’s already happening.
Multinational firms are
moving many of their plants out of China because they are afraid that, whether for political reasons or because of economic tensions between Washington and Beijing, companies could soon see their supply chains from China interrupted. That’s what happened happened when China cut off its exports of face masks to America at the beginning of the COVID pandemic, and U.S. firms fear that could happen again with many other products and parts.
In addition, Chinese wages are already higher than those of many other
Asian and Latin American countries, which gives U.S. companies an additional incentive to move their factories to other parts of the emerging world.
But, amazingly, despite the urge of multinationals to leave China, the rise of Chinese wages, and U.S. Treasury Secretary Janel Yellen’s assertion that “near-shoring” has “tremendous potential benefits” for Latin America, foreign direct investment in Latin America has been falling considerably since 2010, the World Bank report says.
While there have been some recent upticks in foreign investment in Chile, Brazil, Costa Rica, the Dominican Republic and Panama, “overall, the near-shoring trend is bypassing Latin America,” the World Bank report says.
“Strikingly, Mexico, despite its proximity to the United States, experienced much milder increases” in foreign investments, it adds. Translation: Mexico, which already produces many of the manufacturing goods like car parts and electronic products that are made in China, should be the world’s biggest winner of the near-shoring trend, but its populist government has been asleep at the wheel.
What does this all mean for America? The U.S. government can take a big step to make U.S. supply chains more secure and efficient, increase U.S. trade with Latin America, boost international business communities from Miami to Los Angeles, and help stem the flow of Latin American migrants to the U.S. border if the United States supports initiatives to promote “nearshoring” in Latin America.
One of the most worthy proposals that would help achieve that is the “Americas Act,” a bipartisan bill recently introduced in Congress by Sens. Bill Cassidy (R-LA) and Michael Bennet (D-CO.) It was presented last month as a way to counter China’s influence in the region, and would invite friendly Latin American democracies to join the U.S.-Mexico-Canada free trade agreement.
That would make more Latin American countries increasingly attractive for multinationals seeking to relocate their China-based factories. Costa Rica and Uruguay have expressed interest in joining this potentially expanded trade bloc, while Chile, Colombia, Peru and Panama are actively considering it, congressional sources tell me.
At a time when Latin America lags as the slowest-growing region of the emerging world, nearshoring could be a lifeline for the area and a major migration-fighting tool for Washington. Congress should get this one right!