Will Latin America Have a Good 2024

We explore the region’s trade, economy and risk prospects in LatAm Outlook 2024 – the in-depth annual report from Canning House...

UK-Latin America trade

Despite the complicated political challenges, Latin America remains a region with huge commercial potential. Its growing middle class, 650 million population, the need for investment in large scale initiatives, and appreciation for international expertise, means that Latin America is open for business. Existing investors report that winning business in Latin America reaps long-term benefits.

UK accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) creates significant opportunities for businesses in Latin America and for the UK to boost its exports to some of the fastest growing markets on the globe.

Trade data from the Office of National Statistics suggests that joining the CPTPP will bring the UK closer to the Pacific, with Chile, Mexico and Peru already importing a range of products from the UK, such as cars, beverages and pharmaceuticals. The UK joining CPTPP will bring benefits for these Latin American countries on top of existing bilateral agreements, supporting jobs and providing opportunities for growth.

It will cut more tariffs and bring more legal certainty to investors, service providers and companies competing for government contracts. It will facilitate innovation and provide consumers with more choice. The provision for enhancing digital trade was a key priority for the (CPTPP) negotiations, and the updated UK-Mexico Free Trade Agreement will seek to be ambitious on tech and data.

Economic outlook

In the context of the deceleration of economic activity throughout major economies, gradually declining inflation, and tight global financial conditions, Latin American economies have fared reasonably well over the past year. Credible policy frameworks and buffers have allowed for economies to navigate the worsening of the external backdrop – therefore avoiding a crisis – in stark contrast to the region’s experience several decades ago.

With exceptions, activity has surpassed expectations, allowing for a smoother deceleration, even as several central banks led hiking cycles as early as mid-2021, taking policy rates well above contractionary levels. In some cases, however, such as in Argentina and Peru, specific shocks have weighed on activity.

Towards 2024, growth is expected to gradually slow in Brazil and Mexico, while improvements are expected in Chile, Colombia, and Peru. The adjustment of the severe macro imbalances in Argentina, which exacerbated further in the months leading up to the first round of the presidential election, should lead to another annual GDP contraction in 2024.

In this context, tight global financial conditions should lead to central banks only gradually easing monetary policy. The worsening external backdrop between July and October 2023 contributed to the strengthening of the dollar and currency depreciation in the region, and, after peaking in several economies in late 2022, inflation has fallen generally faster than expected.

Risk outlook

Across Latin America, organised crime and a rise in violence have threatened residents’ safety and left governments grappling for effective responses. Although overall homicide rates have plateaued in recent years – albeit at the highest levels in the world – and even fallen in notoriously violent countries such as Colombia and El Salvador, the outlook remains challenging for the year ahead. Over a third of all murders around the world occur in Latin America each year, with many or most of them attributed by national authorities to organised crime.

Rates of gender-linked murders have increased in several countries, and the predatory behaviour of criminal groups has also triggered and aggravated existing humanitarian emergencies such as mass displacement. This is unlikely to change any time soon.

Geography is a major reason why Latin America emerged as a hotspot of global crime. Home to three of the largest cocaine-producing countries in the world – Colombia, Peru and Bolivia – as well as the main exit points for cocaine exports to Europe and the US, the region has played a key role in illicit drug markets for more than four decades.

Over a third of all murders around the world each year occur in Latin America

While Central America, Colombia and Mexico have long been plagued by violence, changes to the routes and networks underpinning the drug trade have brought flareups of violence in countries such as Ecuador and Costa Rica – which traditionally were considered secure and peaceful compared to some of their neighbours.

Many factors have contributed to real and perceived rises in public insecurity. Unprecedented rates of drug production and profitable new narcotic trafficking routes in countries such as Paraguay and Argentina play a role.

Widespread economic hardship in Latin America, which became particularly acute during the pandemic, lured more individuals into organised crime. Meanwhile, the prevalence of corruption in the region has allowed an array of illicit markets to take root. These markets are not solely limited to drug trafficking either. Crime rings are engaging in human smuggling, fuel theft, illegal logging and mining, and extortion.

High-level intra-regional cooperation in responding to drug trafficking and organised crime is largely dormant. Meanwhile, US security cooperation continues to play an important role across Latin America, but its significance appears to be diminishing, as financial assistance for narcotics control and law enforcement in the region – especially in Mexico, Central America and Colombia – has fallen slightly in recent years.