[Economics] The Latin American economy in crisis: ECLAC reduced the growth forecast for this year in the region to 1.2%

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The United Nations body lowered its estimated projection last December. Country by country analysis

A woman sells fruit in a market in Santiago de Chile (REUTERS/ Sofia Yanjari/File)
The Economic Commission for Latin America and the Caribbean (Cepal) reduced the growth forecast for Latin America to 1.2% for this year. The new projections estimate that all subregions would show lower growth compared to 2022.

“The economies of Latin America and the Caribbean face a complex external scenario in 2023, marked by low growth in economic activity and world trade. In addition, to the increases in interest rates worldwide, the financial turbulence observed at the beginning of March was added, which has accentuated the uncertainty and volatility of the financial markets. Although inflationary pressures have slowed, it is expected that monetary policy rates will remain high throughout 2023 in the main developed economies," said the United Nations agency, based in Santiago, Chile.

 

He then stated that, in this context of "growing external uncertainties and internal restrictions", the slowdown in economic growth is expected to deepen in Latin America and the Caribbean this year, reaching a rate of 1.2%. In this way, it reduced its regional GDP growth projection from the 1.3% estimated last December.

A consumer looks for prices in a business in Buenos Aires (REUTERS/Agustin Marcarian)
In its report, ECLAC explained that the countries of the region once again face "limited space for fiscal and monetary policy" and that, although as in the rest of the world, inflation in the region shows a downward trend. low and that it is expected that the process of raising interest rates in several countries of the region could be close, "the effects of the restrictive policy on private consumption and investment will be felt more strongly this year, given the lags with which monetary policy acts”.

In fiscal matters, the agency ruled out that the authorities of the different countries have little room for maneuver, while public debt levels will remain high. "In a context of demands for public spending, measures will be taken to strengthen high fiscal sustainability and expand fiscal space by strengthening the collection and redistributive capacity of tax policy," use.

 

All subregions would show lower growth this year compared to 2022
Analysis by subregions
The report stresses that all subregions would show lower growth this year compared to 2022. South America will grow 0.6% in 2023 compared to 3.8% in 2022; the group made up of Central America and Mexico will do so at 2.0% compared to 3.5% in 2022; and the Caribbean (not including Guyana) will grow 3.5% from 5.8% in 2022.

South America will be affected by the drop in the prices of basic products and by the restrictions on the space that domestic policy has to prop up activity. "High inflation has impacted real income and is having effects on private consumption and investment in the countries," ECLAC analyzed.

Meanwhile, in the Caribbean economies, the slowdown expected in 2023 is mainly due to the fact that inflation has impacted both real income, and with it consumption, as well as production costs, with a negative effect on the competitiveness of exports. both goods and tourism.

Lastly, for the economies of Central America and Mexico, although this year's growth represents a slowdown compared to 2022, in some cases there have been upward revisions compared to what ECLAC provided for last year's fines. This is due to the upward revision of the growth of the United States, the main trading partner and first source of remittances from their countries, which would affect both the external sector and private consumption. In addition, the lower energy prices expected for this year compared to 2022 would act in their favour, given that several of them are net importers of energy.

The situation in each country
Argentina, Haiti and Chile, the only ones that decreased
Argentina will experience a decline of -2%, which makes the country the worst in the region in terms of GDP growth. Chile is negative, although to a much lesser extent: it will decrease by -0.3%; and Haiti, which will do so by -0.7%.

For their part, Venezuela (5%), Panama (4.6%) and the Dominican Republic (4.6%) will lead economic growth this year, followed by Paraguay (4.2%), the Caribbean islands (3, 5%), Guatemala (3.2%), Honduras (3%), Costa Rica (2.7%) and Nicaragua (2.3%).

Uruguay, Peru, Ecuador, Bolivia and El Salvador are located in the middle of the table, all with an estimated growth of 2%; followed by Cuba and Mexico, both with an increase of 1.5%. Below, but still with positive figures, are Colombia (1.2%) and Brazil (0.8%).

ECLAC concluded that the growth forecast for the region is subject to downward risks given the possibility that the turbulence in the global banking system could reappear and intensify, which would result in a more persistent tightening of world financial conditions, with the consequent impacts on the access and cost of financing.

"Along with financial risks, uncertainty persists regarding the effects that the prolongation of the war in Ukraine and the increase in geoeconomic fragmentation could have on economic growth, commodity prices and world trade," concluded the minister. inform

 

Link: https://www.infobae.com/america/america-latina/2023/04/21/la-economia-de-america-latina-en-crisis-la-cepal-redujo-al-12-la-prevision-de-crecimiento-para-este-ano-en-la-region/