In an international scenario marked by uncertainty, with the United States, China and Europe going through a bad economic moment, Latin America will try to navigate the year 2023 resisting the attacks coming from abroad and taking charge of its own internal challenges.
It is true that inflation will drop, according to economists’ projections, but this will be accompanied by lower economic growth, which in the jargon of specialists is a phenomenon known as a slowdown.
However, some countries could be more bogged down than the rest and fall straight into recession.
“is anticipated that Colombia, Chile and Argentina experience annual contractions”, Joan Enric Domene, senior economist for Latin America at the Oxford Economics analysis center, tells BBC Mundo.
“Brazil and Mexico are likely to avoid annual contractions, but they will continue to suffer mild technical recessions and annual growth will be close to zero,” he adds, when comparing the expected evolution for the large economies in the region.
These are some of the economic projections for this year made by international organizations, consultants and investment banks.
1. Growth
Lower commodity prices, as well as tighter fiscal and monetary policies, would add to the global slowdown in a combination that will weigh on regional growth, Domene argues.
Meanwhile, the Economic Commission for Latin America, ECLAC, projects growth of 1.3% for Latin America and the Caribbean in a context of a deeper slowdown.
According to the agency, this is partly due to the fact that countries have faced restrictive monetary policies, greater limitations on fiscal spending, lower levels of consumption and investment, and the deterioration of the external context.
The International Monetary Fund, IMF, has raised an estimate of lower growth for the region in 2023 (1.7%), “as growth in partner countries weakens, financial conditions tighten and commodity prices cousins soften.”
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The agency predicts that social unrest in large sectors of Latin America could lead to a more pronounced slowdown.
The World Bank also projects lower growth (1.6%) due to high interest rates, the decrease in the price of raw materials, the uncertainty of the war in Ukraine and low growth in China, which affects exports .
We will see “a stubbornly mediocre performance”warns the body.
While economists at the research firm Standard & Poor’s say recessionary risks are rising, those at investment bank JPMorgan warn there is a “risk of a fiscal deterioration driven by political and social pressuresas growth does not return to pre-pandemic levels and social inequality deepens.
Still, JPMorgan’s projections argue that Latin America stands out among all emerging markets, as the region’s major central banks should begin to ease monetary policy, thereby softening the blow to growth.
2. Inflation
“Inflation in 2023 will be lower than in 2022, but not as low as before the pandemic,” José Manuel Salazar-Xirinachs, ECLAC executive secretary, told BBC Mundo in December.
This diagnosis is the general consensus among international organizations and investment consultancies, whose analyzes agree that it is coming a disinflationary year for the region.
“We believe that all central banks will miss their inflation targets this year,” explains Domene, although it will still be well above the targets that each country is pursuing.
Regarding interest rates, Oxford Economics estimates that the central banks of Mexico and Colombia they will probably extend increases into the first quarter of 2023, but elsewhere in the region, that monetary policy would have already come to an end.
The estimate is that the main economies of Latin America, except Colombia, will begin to cut interest rates in the second half of the year.
“However, Financing conditions will continue to be very restrictive in all countries”, he warns.
JPMorgan experts agree that the price increase probably reached its peak in the large economies of the region.
“As economic growth slows, commodity prices weaken, and food and energy prices moderate, our most recent forecast indicates that inflation in Latin America will end 2023 at 4.1%,” the statement said. half of that achieved last year.
3. Influence of the political environment on the economy
According to estimates by the Economist Intelligence Unit, EIU analysis center, in addition to the challenges posed by the global environment, political factors are added that can influence economic developments.
“Perhaps the most important event to watch in Latin America in 2023 is the success or failure of the many new governments in the region in their attempt to address the demands of the voters that brought them to power, while dealing with serious macroeconomic dilemmas and divided legislatures”, explains the latest report published on the region.
Despite this challenging environment, EIU analysts say there will be growth opportunities in 2023, particularly in agriculture, mining and nearshoring (transfer of part of the production that is made in China to Latin America).
However, to take advantage of these opportunities, the document adds, “the new governments of the region will have to implement policy reforms in 2023 that respond to public concerns without causing too much damage to the investment climate.”
For their part, Standard & Poor’s analysts anticipate that the resurgence of leftist governments “It will lead to higher tax burdens and more state-led development.”
However, they add, “it is highly unlikely that these governments will revive the widespread expropriations and contract renegotiations carried out by their predecessors at the beginning of this century.”
And not only that. These governments, they argue, “are appointing central finance and economy ministerswho are gaining greater influence, generating greater economic, financial and political stability”.
Another element that they add to the equation is that, with the exception of Mexico, most of the leftist governments in the region They will not have control of their Congresses “reducing the scope and diluting anti-business policies”.
From the point of view of social policies, ECLAC maintains that it is essential to promote investment and productivity in order to “meet the demands of the populationthe creation of decent employment, reducing informality, inequality, poverty, and advancing in the adaptation and mitigation of climate change”.
Probably one of the most complex challenges for governments in the region is how to reconcile the demands of the majority of the population with the interests of private investors and political elites.
In any case, the projections are made with the elements of analysis that exist at this time. If surprises come up, as happened with the war in Ukraine last year, they could change suddenly.
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