OECD forecasts Latin America, Caribbean to reach pre-pandemic structural balance by 2025

By Thomson Reuters Mar 13, 2024 | 9:06 AM

By Natalia Siniawski

(Reuters) – The Organization for Economic Cooperation and Development said on Wednesday it projects the average structural balance in Latin America and the Caribbean to reach pre-pandemic levels by 2025.

The regions are expected to see a steady improvement from 2022 to 2025, with forecasts indicating a return to -3.4% of potential GDP by 2025. This figure aligns with projections for OECD countries and mirrors the -3.4% recorded in 2019.

The structural or underlying fiscal balance is the difference between government revenue and expenditure, corrected for effects that could be attributed to the economic cycle and one-off events. It is used by the OECD to provide a clearer understanding of governments’ fiscal positions.

The COVID pandemic exacerbated structural deficits in the Latin American and Caribbean (LAC) region and the OECD due to a decrease in government revenue and increased public spending.

As a result, the LAC’s average structural balance deteriorated from -3.4% of potential GDP in 2019 to -4.7% in 2022, while the OECD’s fell from -1.38% to -3.8% over the same period.

Forecasts suggest Suriname will lead the recovery with a 4.0 percentage point gain, followed by Colombia with 3.6 percentage points and Argentina with 2.9 percentage points. By 2025, only Suriname and Barbados are expected to post positive balances of 0.9% and 0.1% of potential GDP, respectively.

Major LAC economies, Argentina and Mexico, are predicted to better the LAC average by 2025, at -1.2% and -2.8% of potential GDP, respectively. However, Brazil is forecast at -5.4% of potential GDP.

The LAC region’s average structural balance for 2024 is projected at -4.6% of potential GDP, indicating a larger imbalance compared with the OECD’s average of -2.7%.

(Reporting by Natalia Siniawski; Editing by Alison Williams)