Aug. 27 (UPI) — Latin America is stuck in what the United Nations’ Economic Commission for Latin America and the Caribbean, known as ECLAC, calls a “low-growth-capacity trap.”

The commission projects regional growth of just 2.2% in 2026, which would mark five consecutive years of growth averaging around 2.3%, a pace ECLAC warns is insufficient to produce sustained gains in per capita income.

That is a familiar story with a discouraging arc, one this series has traced through the commodity boom of the 2000s and the crash that followed.

The pandemic added its own chapter and left behind a shift the region has not yet fully exploited: a leap in digital adoption. Whether Latin America converts that shift into higher productivity will depend less on favorable external conditions than on deliberate policy choices.

The weakness predates COVID-19. According to ECLAC, Latin America grew by an average of just 0.3% annually between 2014 and 2019, as productivity stagnated, investment remained weak and engagement in the informal economy stayed high.

Then the pandemic struck. Regional GDP contracted by roughly 6.8% in 2020, ECLAC data show, the deepest downturn the region had experienced in a century. Governments responded with cash transfers, credit guarantees and tax deferrals that helped prevent an even deeper collapse, but public debt rose sharply as a result.

The 2021 rebound initially looked impressive, driven by reopening economies and statistical base effects. But global supply bottlenecks, higher energy and food prices, and Russia’s invasion of Ukraine fed a new problem: inflation.

Latin America’s central banks raised interest rates earlier and more aggressively than many of their advanced-economy counterparts, and largely succeeded in taming prices, though at the cost of slower investment and more expensive debt service.

The region emerged from the pandemic with higher debt, higher borrowing costs and growth settling back near its pre-COVID pace.

That is the bad news. The better news is that the pandemic also forced a change that Latin America had long delayed: a rapid shift toward digital tools, which remains the region’s least-developed opportunity even as nearshoring and the energy transition, both examined elsewhere in this series, continue to reshape investment flows.

Nearshoring remains real. Proximity to the United States continues to draw investment toward Mexico, Central America and the Caribbean, though geography alone does not determine who benefits; competitiveness does.

The energy transition remains real too, with the region’s lithium, copper and renewable-energy reserves still depending on whether that wealth is converted into durable productive capacity rather than another commodity cycle.

Digitalization is where Latin America has the most room to move, and where recent numbers point to genuine momentum. A Mastercard-backed survey of consumers across 10 countries in the region found in March that 89% now qualify as digital users, a sharp rise from a few years earlier.

Brazil’s instant-payment system, Pix, has surpassed 150 million users, according to the country’s central bank, and increasingly handles everyday commercial transactions rather than just transfers between individuals.

That momentum has outpaced the productivity gains it has produced so far. Digital payments expanded rapidly during the pandemic and have kept growing since, but converting wider access into higher output requires more than adoption alone: better digital infrastructure beyond major cities, workforce training, and fewer bureaucratic obstacles that keep businesses informal.

That last point matters directly for growth. ECLAC’s own Aug. 20 report explicitly tied the region’s low-growth trap to the informal economy, and recommended using digitalization and administrative interoperability to simplify compliance and formalize more of the labor force.

Nearly half of the region’s workers remain in informal jobs, the commission found, and formal firms convert growth into productivity gains far more effectively than informal ones. Closing that gap, more than any single pipeline of new investment, is where digital tools could matter most.

Latin America will not escape its low-growth trap through lower interest rates or another favorable commodity cycle alone. The region needs fiscal discipline that protects, rather than sacrifices, investment in infrastructure and human capital, along with the monetary stability that many of its central banks have worked hard to build.

Above all, it needs conditions in which businesses can invest, formalize and grow, with digitalization serving as a tool for all three rather than a separate initiative.

If Latin American countries can raise productivity along these lines, sustained growth above 3% annually during the coming decade is not an unrealistic ambition. The pandemic exposed the limits of economies burdened by weak productivity and informality, but it also left behind a digital shift the region has only begun to use.

Unlike the commodity booms this series has chronicled, this opportunity is not in the ground. It is in how quickly Latin Americans already online can be brought fully into the formal economy.

César Addario Soljancic (www.cesaraddario.com) is an economist specializing in public finance, with decades of experience advising governments and institutions across Latin America and the Caribbean. Over his career, he has led 69 capital-market issuances across 13 countries, totaling nearly $49 billion. The views expressed are solely those of the author.