Connecting the Dots: Five Development Trends for 2025 in LAC
January 16, 2025
This #GraphForThought recap builds on past analyses to highlight five trends that we observed in 2024 that are likely to persist or intensify, in 2025: Slow Economic Growth, Low Productivity, Persistent Inequalities, Social Fragmentation, and Pressing Climate Changes. These trends are not new, but they, for the most part, intensified in 2024. By understanding these ongoing issues, we hope to better shape strategies for advancing human development in 2025.
1.The same old slow economic growth, will make poverty reduction increasingly difficult
LAC is expected to grow 2.5% in 2025, Only 0.4 percentage points (pp) more than in 2024 (2.1%) and 0.7pp (3.2%) below the global average (IMF World Economic Outlook, Oct 2024). This slow pace of economic growth, which has been a constant feature in the region for decades, combined with high volatility, will hamper any poverty reduction efforts. Urban households, closely tied to the market, are particularly at risk from economic disruptions. While rural poverty remains higher, poverty in urban areas is rising faster, adding new pressures to cities.
2. Low productivity, missed opportunities
Low productivity is one of the biggest obstacles to growth in LAC. The region has struggled to take advantage of past technological revolutions and risks missing out on the benefits of digitalization and AI.
To move forward, the focus needs to be on creating jobs and businesses that are built on knowledge and innovation, especially in science, technology, engineering, and math (STEM) fields.
3. Persistent inequalities, untapped potential
Structural inequalities remain deeply rooted and are materializing in new areas, like the digital divide. LAC won’t fully benefit from digitalization and AI if lower-income and rural households remain disconnected from basic infrastructure, like the Internet.
Educational gaps compound the problem, with PISA results highlighting struggles in mastering complex skills like math and science. Additionally, social inequalities, such as the disproportionate care burden on women, limit their economic contributions -even as they graduate from STEM fields at nearly the same rate as men.
4. Social fragmentation, disenchanted populations
Persistent inequality is eroding public trust in democracy and institutions, deepening social fragmentation. Many feel that democracy isn’t meeting their needs, and might turn to radical solutions, like coups, if it helps ensure safety and security.
This dissatisfaction can push people to rely more on their close-knit communities, which risks intensifying divisions and weakening trust in institutions.
5. Pressing climate changes, pressured societies
On top of economic and social challenges, the region is also struggling with environmental changes. Climate change is no longer a distant threat but a daily reality. For instance, more frequent and severe droughts are disrupting lives and impacting agriculture, trade, and energy production.
If no further actions are taken, these pressures could compromise the quality of life and resilience of people in LAC.
Reimagining the future of development in Latin America and the Caribbean
The challenges faced by Latin America and the Caribbean -complex yet deeply interconnected- demand a reimagined approach to human development. On the one hand, urban and rural households require tailored strategies to reduce poverty and build resilience against shocks. On the other hand, poverty reduction mimics economic growth, making efforts to harness digitalization and AI benefits key for progress on both ends. This includes investing in affordable internet access, fostering digital skills, and promoting women's participation in the economy, particularly in STEM fields, to unlock untapped potential.
Rebuilding trust in institutions and strengthening democracies are equally critical. Governments must address citizens’ concerns, especially those of youth, to restore trust and improve social cohesion. At the same time, the growing impacts of climate change call for urgent actions to protect vital resources like water, central to livelihoods, agriculture, energy, and trade.
By integrating these efforts to address economic, social, and environmental challenges, the region can set a path toward a more inclusive, resilient, and sustainable future.