The last year has seen some good news for Latin American economies. The region’s recovery has been stronger than expected, and growth forecasts by the World Bank and IMF have improved since six months ago. Vaccination campaigns and fiscal support have sparked an economic rebound since the second half of last year, despite an apparent loss of momentum in the third quarter of this year.

But the future looks uncertain. Latin America is caught between two major global forces that threaten the region’s growth: a potential drop in capital flows from the U.S. as pandemic stimulus tapers off; and decreasing growth in China, where an energy crunch is hitting just as the country’s exhausted property markets begin to go into reverse. To weather the storm, countries in the region will have to target their fiscal support and signal that medium-term frameworks will be followed, while doing what it takes to ensure a private-sector recovery can compensate for policy contraction.

Even up to this point, the region’s recovery has been uneven and partial. This has been due in large part to differences in vaccination rates — 75% of the population fully vaccinated in Uruguay, 5% in Nicaragua — and in ability and willingness to deliver fiscal support. By the end of this year, the GDP of most countries in the region is set to remain below 2019 levels, and no country is likely to reach the GDP levels forecasted for 2022 prior to the pandemic

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Canuto is a senior fellow at the Policy Center for the New South, a nonresident senior fellow at the Brookings Institution, and principal of the Center for Macroeconomics and Development. He is a former vice-president and a former executive director at the World Bank, a former executive director at the International Monetary Fund and a former vice-president at the Inter-American Development Bank. Contact: ocanuto@cmacrodev.com