How is the Slowdown Affecting Households in Latin America and the Caribbean?

Abstract

This paper shows evidence that suggests the economic slowdown in Latin America and the Caribbean has already translated into slowing social gains, including decelerating poverty reduction, stagnating growth of the middle class, and lower income growth. The countries of South America outperformed Mexico, Central America, and the Caribbean in poverty reduction during the decade up to 2012. But since then, a new story has emerged. In recent years, poverty reduction has been disappointing across the entire region, which seems to be converging toward low growth with slow poverty reduction and stagnant inequality. However, this apparent convergence in poverty reduction is driven by diverging labor market patterns. In a reversal of the trends seen during the commodity boom, real wages have been falling in South America and rising in Mexico, Central America, and the Caribbean. As lower economic growth is likely, the new normal will pose challenges for policy makers, in protecting the gains achieved and for societies as they face a mismatch between expectations and actual social mobility.