Latin America and the Caribbean (LAC) face a complex global landscape characterized by geopolitical shifts, trade fragmentation, and heightened uncertainty. Within this environment, the growing trend of nearshoring—the relocation of production activities closer to consumer markets—emerges as a potential source of economic dynamism.
This blog post shares the story behind our recent working paper on how Colombia’s unique Gross Leverage Position in foreign exchange derivatives helped prevent a housing bubble from bursting and what emerging economies can learn from it.
In the first quarter of 2025, economic conditions in the United States reflect a labor market showing mixed signals, alongside persistent inflationary pressures. This context may limit the Federal Reserve’s (Fed) room to cut its policy rate, suggesting a scenario of higher international interest rates for a prolonged period.
The global economy is undergoing a reconfiguration process that is characterized by growing geoeconomic fragmentation, which is defined as the tendency for trade, investment, and global value chains to divide into geopolitically aligned blocs.
Fiscal policy can significantly impact the rate of inflation in Latin American countries. Governments in the region have historically implemented procyclical fiscal policies, increasing spending and borrowing during periods of economic growth and tightening policies during recessions. This approach has contributed to volatility in inflation rates and economic instability.
In recent years, fiscal matters have taken center stage in both academic research and economic policy debates. This heightened focus is largely a consequence of the significant rise in public debt levels observed across advanced and emerging economies in the aftermath of the COVID-19 pandemic. At the same time, the sharp increase in inflation experienced in many countries led central banks to implement substantial hikes in policy interest rates.
Latin America faced a mixed economic outlook in 2024 amid a slight global economic slowdown driven by geopolitical tensions and uneven performance among major global economies. The region’s economic growth outpaced initial projections (2.3% compared to 1.8% forecasted), supported by resilient external capital flows, robust financial systems, and monetary policies that helped bring inflation closer to target levels.
Authors: Carlos Giraldo, Latin American Reserve Fund, Bogotá, Colombia. Email: – cgiraldo@flar.netIader…
Throughout the year, the global economy has experienced a slight deceleration in growth compared to 2023, accompanied by inflation rates aligning more closely with target levels. This trend has enabled central banks in the Eurozone and the United States to initiate reductions in interest rates.
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