In this analysis, Paraguayan consulting firm MF Economía e Inversiones addresses the expansion projections for Latin America in general and the Guaraní country in particular.

Latin America's average growth rate over the past decade has been 0.9 percent, which has led the region into a low-growth trap. Growth is projected for 1.8 percent this year and 2.3 percent in 2025, according to a recent study by the Economic Commission for Latin America and the Caribbean (ECLAC).

The factors influencing economic stagnation, especially in recent years, have been mixed. At the international level, persistent uncertainty linked to the pace of inflation moderation and the speed of monetary policy easing in the main advanced economies tend to weaken global growth and maintain restrictive financial conditions. In addition to other scenarios, such as geopolitical, trade and climate tensions.

In the domestic context, inflationary pressures, especially on food, also affect the purchasing power of households. Limited monetary policy has had implications for a lower dynamic of domestic demand and, in particular, of the already lacking investment.

Added to these factors is the limited scope for fiscal policies, explained by the burden of servicing public debt.

In terms of employment, the dynamics have been affected by low labour productivity and the low creation of formal jobs, among other job insecurity linked to age and gender.

PARAGUAY ON THE GROWTH MAP

Looking at economic growth data for the years 2023-2024, Latin America recorded a reduction of 0.3 percentage points (pp) and for the years 2024-2025 an increase of 0.5 pp is expected as an interannual variation.

Among the countries of impact is Paraguay, whose growth between last year and what is projected for the current year also shows a decrease of almost 1 and 0.2 pp in comparison with 2025. On this point, ECLAC projects a Gross Domestic Product (GDP) growth rate of 3.8% for the end of this year and 3.6% for the next.

Thus, Paraguay, according to these projections, would grow more than countries such as Brazil, Chile, Peru, Uruguay and Argentina, except for 2025, when the economy of neighboring Argentina is expected to expand by 4%.

HOW THE CENTRAL BANK'S TPM HAS EVOLVED

The pandemic had reshaped the entire economic scenario worldwide. Paraguay was no exception, having deployed a policy to mitigate the impacts on economic dynamics and then change direction in order to bring inflation back on track.

From March to August of this year, the Monetary Policy rate of the Guaraní country has remained at 6% with inflation already accommodated within the target range.

Several internal and external factors have influenced this decision by the Central Bank of Paraguay (BCP), however, a reduction in the reference rate is expected, considering that many companies are still in the process of recovery and need better financial conditions to promote their projects.

On the State side, although investment in infrastructure has certainly been showing a revival, it is still insufficient to inject the expected dynamism into the sector as an important generator of labor in the country.

Investment averages have not managed to recover compared to the pandemic period, when investments exceeded US$ 1 billion. Although it was an atypical period, the construction sector had made significant investments in machinery and human capital, given the state's commitment to generate more projects to reduce the country's infrastructure gap, which is around US$ 24 billion.

CHALLENGES OF THE PARAGUAYAN LABOR MARKET

The labor market also presents its challenges. From a slow recovery to an increase in the informal population, which according to the latest data from the National Institute of Statistics (INE) registers 106,776 new non-agricultural informal workers in the country, totaling 1,519,029 men and women in precarious working conditions, that is, they do not contribute to the retirement and pension system nor are independent workers registered in the Single Registry of Taxpayers, therefore they do not generate the economic impact that formal employment does.

Finally, Paraguay and the entire region face challenges ranging from the design of structural reforms to diversification policies linked to productive development and employment that support the components of each economy in order to emerge from the low-growth trap faced by Latin American countries.

* This material was prepared by MF Economy and Investments.