Poor nutrition and fewer savings: The price Latin America and the Caribbean are paying as the world’s most volatile region

When Almudena Fernández saw the final result of the numbers she had been calculating, her jaw dropped. The chief economist for Latin America and the Caribbean at the United Nations Development Program (UNDP) had been attempting to measure the economic volatility of different world regions in order to see how hers measured up.

“It didn’t surprise us that we were the world’s most volatile,” said the specialist. “But honestly, I was surprised by what magnitude.” The standard deviation of the average Gross Domestic Product (GDP) growth rate, a measure of economic volatility, was 7.2 for Latin America between 2020 and 2022. In comparison, the worldwide figure is 4 and that of advanced economies is 5.

The lack of stability among Latin American economies and the link between political ups and downs with the global commodity cycle have been well documented, with specialist warning for years of possible negative consequences. Fernández was determined to quantify that connection, and her findings are consistent with other periods starting from 2000. “I was especially surprised by the last period we measured,” says the economist, “because the region came out 1.5 times higher than the variation seen in the world as a whole. This tells us that it is a much more volatile region.”

Although global economic cycles are experienced around the world, their ups and downs are lived more intensely in Latin America, and have a long-term impact on its growth. They lead to less consumption, fewer savings and less investment, and eventually have an impact on the region’s productivity, which is already quite low. In the end, Fernández explains, all this has a negative impact on growth, creating a vicious cycle. Latin America has grown 1.3% on average over the last 10 years, a rate that is insufficient to lift those living in vulnerable conditions out of poverty.

“The other reason that this matters to us, and should matter to us, is that it has a real impact on human capital accumulation,” Fernández says. “By this, I mean development. There is a lot of literature that talks about how shocks so strong and so close together have an impact on poverty, on larger drops in GDP, that end up affecting nutrition — infant mortality, that is. If you take any indicator of development, you see that these shocks lead to a negative impact.”

One of the clearest, most recent examples of this, presented by the UNDP, is the pandemic and the impact that it had on school drop-out rates. High rates hinder the ability of children, once they become adults, to have access to well-paying jobs that require certain knowledge and skills. The sudden loss of employment in a household impacts the nutrition of its family members, and when this happens at a young age, it can have consequences when it comes to kids’ development.

In addition to the shocks themselves, constant volatility affects planning by people who own businesses. They effectively anticipate non-stop crisis, due to the fact that they are constantly experiencing them in their countries. “Our economies in Latin America are basically formed by small companies with less than five employees,” says Fernández. “A small company that knows that the economy fluctuates at these levels, that never knows when the next shock will come, will think twice before acquiring productive assets, for example. This then will limit the capacity that these companies have to grow. In the aggregate, this prevents the economy from growing.”

In the interest of shock mitigation, multilateral organizations like the International Monetary Fund and the World Bank have proposed maintaining strong autonomous institutions, like central banks. For its part, the UNDP believes that economic diversification, the ability to implement counter-cyclical public policies and quality of governance will largely define how deep the shock will be for a country.

Sign up for our weekly newsletter to get more English-language news coverage from EL PAÍS USA Edition