A high dollar against many of the world’s main currencies contributes to the economic slowdown.
This strength of the greenback has been combined with the increase in interest rates in the United States to put obstacles to growth.
They are not the cause of the current economic hardships, but they are adding fuel to the fire, when the world faces historical levels of increase in the cost of living and much uncertainty over the war in Ukraine.
Experts say the rising dollar is contributing to a “synchronized slowdown” in the pace of activity in different parts of the world.
“A strong dollar is affecting growth because it occurs at the same time as high inflation, and that high inflation has to be combated with high interest rates”, says Eduardo Carbajal, professor of Economics and Finance at the Tecnológico de Monterrey, in Mexico.
So, a high dollar, indicates in dialogue go with BBC Mundo, ” is making credit more expensive, not only in the United States, but also throughout the world.”
This means that when borrowing money is more costly for countries, companies and individuals, activity slows down and recovery becomes difficult.
As if it were a delicate balance, any movement of the economic gear causes an effect in another part of the system.
More expensive imports
The second effect of a rising dollar is that ” raises the price of imported products, which increases inflation,” explains Elijah Oliveros-Rosen. , senior economist at the consultancy S&P Global Ratings.
And, on the other hand, “it makes the payment of the debt in dollars more expensive”, something that can of generating fiscal pressures in countries that have few funds to spend, he points out.
With meager fiscal budgets, governments are having to face the marks left by the covid pandemic-19 and the need for social assistance that they require the majority of Latin American families that can hardly resist such high inflation.
In the end, a higher dollar generates less consumption and less investment outside the US, which, added to the strong fluctuations of the financial markets, does not anticipate a very promising path for the coming months.
How much has the dollar strengthened?
In the last year the dollar has appreciated in relation to other 10 strong currencies of the world close to a 12%, while so far this year, the incr The increase has been 7%, according to one of the most used indices to measure the performance of the greenback: the “Bloomberg Dollar Spot Index (BBDXY)”.
This occurs when the US Federal Reserve (FED), which is the equivalent of the central bank, has embarked on a progressive rise in interest rates to curb inflation.
And according to market projections, it will continue to raise them at least throughout this year, while investors continue to buy dollars as a way to protect your capital in these times of economic uncertainty.
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A great challenge that is hitting the advanced economies that have seen a depreciation of mo currencies such as the euro, the Swiss franc or the pound sterling.
How much have Latin American currencies weakened?
This has also happened in emerging economies, such as Latin America, which have to deal with weakened currencies, raise their own interest rates or intervene to cushion the fall of their banknotes.
Comparing the largest economies in the region, between 675 and so far this year, the currencies that have devalued the most are those of Argentina -(27%), Chili (-18%) and Colombia (-15%), Meanwhile he The Brazilian real was the only one to appreciate (3.7%) in the same period.
In this scenario, if inflation does not yield, interest rates are likely to continue to rise, experts predict.
And if this is true, the region will have to wait for a good time to recover its growth.
Capital outflow?
The same globally. That is why economists say that we are facing “stagflation” (or at least it is just around the corner), which means little growth with high inflation.
The projections of international organizations indicate that it is not unreasonable to think that the US and Europe will enter a recession, that China will slow down sharply and credit stays high.
High rates in the US make this market more attractive for investors who do not want to take risks and prefer to take their capital out of emerging economies, a phenomenon that according to the Institute of International Finance (the world business association of the financial industry) is already happening.
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