REGIONAL REPORT
“ Amid global monetary and financial tightening , and the ensuing slowdown in global growth and softening of commodity prices , growth in the region is poised to decelerate to 1.7 per cent in 2023 or 0.3 percentage points lower than forecasted in July . Downside risks dominate the outlook and stem from tighter financial conditions , a more pronounced global slowdown and entrenched inflation . A sharp fall in commodity prices and social unrest are also important risks for the region ,” cautioned the IMF .
“ With inflation yet to abate and most economies still operating at or near potential , monetary policy should avoid easing prematurely and must stay the course . Having to restore price stability later if inflation becomes entrenched would be very costly ,” it added .
The IMF recommended that fiscal support deployed to mitigate the impact of inflation on the most vulnerable should be accompanied by compensating measures , where fiscal space does not exist , but also to support monetary authorities ’ efforts to tame inflation . With weak public finances in many countries and rising financing costs , strengthening fiscal frameworks with particular emphasis on inclusive policies , including those that aim to protect vulnerable households , will be key to put public debt on a downward path while ensuring social stability .
“ Achieving these policy objectives will also require boosting medium-term growth , by raising productivity and goodquality public and private investment .
Sao Paolo , Brazil .
Policies should focus on strengthening human capital , simplifying and modernising labour regulations , and lifting barriers to firm entry and exit ,” it concluded .
The path to recovery
A third shock — tightening global financial conditions — is now shaping the outlook for the region
The strength of the post-pandemic recoveries has varied across the region .
“ The global rebound of commodity prices from the pandemic lows , further boosted by the war in Ukraine , has generally supported the recovery of commodity exporters ( some South American economies ), while constraining those that depend more on commodity imports ( Central America and tourism-dependent Caribbean economies ). The upward trend of commodity prices seems to be reversing , as global financial conditions tighten ,” commented the IMF . Among the largest economies , Chile and Colombia have seen a particularly dynamic rebound , propelled by strong growth in services , in part due to the fiscal stimulus in late 2021 , while Mexico ’ s economic output is yet to regain its pre-pandemic level as services and construction continue lagging .
“ Caribbean economies are also behind in their recovery as tourism is yet to return to pre-pandemic levels , despite the recent rebound . Meanwhile , Central America , Panama and the Dominican Republic have already surpassed their pre-pandemic output levels , driven by the rapid recovery in the United States , through strong exports and remittances inflows as well as supportive policies ,” continued the IMF . Inflation , on the other hand , has accelerated throughout the region , amid rebounding domestic demand , lingering supply chain disruptions and rising commodity prices . Central banks have appropriately tightened monetary policy to contain second-round effects and anchor longerterm inflation expectations . But inflation could prove persistent in the wake of compounding shocks and broadening price pressures .
The majestic Mexican infrastructure of the Baluarte Bridge , Latin America ’ s tallest cable-stayed bridge .
All images in this article are courtesy of Shutterstock . com
ISMR December 2022 / January 2023 |
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