Latin America's economy to grow 3.2% in 2022, ECLAC says

The Economic Commission for Latin America and the Caribbean (ECLAC) increased its growth projection for the region for 2022 to 3.2%; in August it had estimated an increase of 2.7%. However, by 2023 it foresees a further slowdown and puts average progress at only 1.4%, with the region's countries subject to significant external and internal restrictions.

The UN agency highlighted the impact of the war in Ukraine on global growth and external demand. Like the rest of the world, Latin America and the Caribbean saw inflationary pressures, volatility and financial costs increase.

In addition, increased investor risk aversion and tighter monetary policy by the world's major central banks dampened capital flows to emerging markets, including Latin America.

These factors led to depreciations of local currencies and made financing more expensive, leading to a debt crisis.

According to ECLAC, the international environment will remain unfavourable for the countries of the region in 2023, as there will be a slowdown in growth and world trade, with higher interest rates and less global liquidity.

Fiscal and monetary policies will add complexity to an environment in which central banks have raised interest rates and reduced monetary aggregates to curb inflation.

Although by 2023 the effect of these measures would be felt by stabilising inflation and, consequently, monetary policy would change, the effects of this tightening period on private consumption and investment will remain present throughout the year.

On the fiscal side, public debt levels will remain high in a large number of countries and, as there will be a high demand for public spending, measures to strengthen the fiscal side and increase tax revenues will be required.

For the sub-regions, ECLAC estimates lower growth next year: 1.2% for South America, 1.7% for Central America and Mexico, and 3.1% for the Caribbean, excluding Guyana. In 2022, these areas would grow by 3.4%, 2.5%, and 4.3%, respectively.

The slowdown in China would affect some South American countries that direct a large part of their exports to the Asian giant. Chile, Brazil, Peru and Uruguay, for example, place more than 30% of their export goods in Chinese markets. Lower commodity prices will also hurt South America, whose high inflation rates have hit real incomes and the effects on private consumption.

The economies of Central America and Mexico, meanwhile, will suffer in the external sector and domestic consumption from the slowdown in the United States, their main trading partner and primary source of remittances. However, lower commodity prices would favour several food and energy importing countries.

With respect to the Caribbean economies, ECLAC indicated that inflation has hit real incomes and production costs with a negative impact on consumption and on the competitiveness of exports of both goods and tourism.