Latin America stuck in low-growth trap, ECLAC projects 2.2% for 2026

Nearly half of region’s workers remain in informal jobs, ECLAC finds

Latin America’s economy is projected to grow 2.2% in 2026, the United Nations’ Economic Commission for Latin America and the Caribbean said, marking a fifth consecutive year of growth averaging around 2.3%. The commission, known as ECLAC, described the pattern as a “low-growth-capacity trap” — a pace it said is insufficient to produce sustained gains in per capita income. The projection appeared in an ECLAC report dated Aug. 20 and was discussed in a UPI Voices column published Aug. 27 by César Addario Soljancic, an economist specializing in public finance.

The weakness long predates the pandemic. According to ECLAC, Latin America grew by an average of just 0.3% annually between 2014 and 2019, with productivity stagnating, investment remaining weak, and engagement in the informal economy staying high. When COVID-19 hit, regional GDP contracted by roughly 6.8% in 2020 — the deepest downturn the region had experienced in a century, ECLAC data show.

Governments responded with cash transfers, credit guarantees, and tax deferrals that helped prevent an even deeper collapse, but public debt rose sharply as a result. The 2021 rebound initially looked strong, driven by reopening economies and statistical base effects, but global supply bottlenecks, higher energy and food prices, and Russia’s invasion of Ukraine fed a new wave of inflation. Latin America’s central banks raised interest rates earlier and more aggressively than many of their advanced-economy counterparts, and largely succeeded in taming prices — though at the cost of slower investment and more expensive debt service.

The region emerged from the pandemic with higher debt, higher borrowing costs, and growth settling back near its pre-COVID pace. ECLAC’s Aug. 20 report explicitly tied the region’s low-growth trap to the informal economy and recommended using digitalization and administrative interoperability to simplify compliance and formalize more of the labor force. Nearly half of the region’s workers remain in informal jobs, the commission found, and formal firms convert growth into productivity gains far more effectively than informal ones.

Writing in UPI’s Voices column, Addario Soljancic identified digital adoption, nearshoring, and the energy transition as the region’s most promising avenues for breaking out of the low-growth trap. Nearshoring continues to draw investment toward Mexico, Central America, and the Caribbean, he wrote, though he cautioned that geography alone does not determine who benefits — competitiveness does. The region’s lithium, copper, and renewable-energy reserves depend on whether that wealth is converted into durable productive capacity rather than another commodity cycle, he argued.

On digitalization, Addario Soljancic pointed to recent numbers suggesting momentum. A Mastercard-backed survey of consumers across 10 countries in the region found in March that 89% now qualify as digital users, a sharp rise from a few years earlier. Brazil’s instant-payment system, Pix, has surpassed 150 million users, according to the country’s central bank, and increasingly handles everyday commercial transactions rather than just transfers between individuals.

That momentum has outpaced the productivity gains it has produced so far. Digital payments expanded rapidly during the pandemic and have kept growing since, but converting wider access into higher output requires more than adoption alone: better digital infrastructure beyond major cities, workforce training, and fewer bureaucratic obstacles that keep businesses informal, according to Addario Soljancic. Closing the gap between formal and informal firms, he wrote, is where digital tools could matter most — more than any single pipeline of new investment.

Addario Soljancic concluded that Latin America will not escape its low-growth trap through lower interest rates or another favorable commodity cycle alone. The region needs fiscal discipline that protects investment in infrastructure and human capital, the monetary stability its central banks have worked to build, and conditions in which businesses can invest, formalize, and grow — with digitalization serving as a tool for all three rather than a separate initiative.

If Latin American countries can raise productivity along these lines, sustained growth above 3% annually during the coming decade is not an unrealistic ambition, he wrote. The pandemic exposed the limits of economies burdened by weak productivity and informality, he said, but it also left behind a digital shift the region has only begun to use. Addario Soljancic (www.cesaraddario.com) is an economist specializing in public finance, with decades of experience advising governments and institutions across Latin America and the Caribbean; the views expressed in his column are solely those of the author.