“ Latin America successfully weathered recent global shocks and showed a strong performance in 2022 and early 2023 , although growth is now softening .”
Following a strong rebound from the pandemic and continued resilience in early 2023 , the International Monetary Fund ( IMF ) predicts economic growth in Latin America and the Caribbean ( LAC ) to moderate from 4.1 per cent in 2022 to 2.3 per cent in 2023 .
“ Headline inflation in the region ( excluding Argentina and Venezuela ) has been declining and is anticipated to reach five per cent in 2023 , compared to 7.8 per cent in 2022 . Thanks to improved macroeconomic management , the region can focus on how to boost growth by addressing long-lasting challenges including lacklustre productivity , low investment and labour market rigidities ,” said the IMF in its ‘ Western Hemisphere Regional Economic Outlook ’ in October 2023 . “ The changing global environment also presents new challenges and opportunities , like climate change and the irruption of new digital technologies . Preserving social cohesion should be a centrepiece of any policy plans , including through strengthening social protection mechanisms and tackling insecurity ,” it added .
General outlook
BOOSTING RESILIENCE
The International Monetary Fund ( IMF ) highlights trends and economic forecasts for the Latin America and Caribbean region ( LAC ).
Image : Shutterstock . com .
“ Latin America has successfully weathered recent global shocks and showed a strong performance in 2022 and early 2023 , although growth is softening . The slowdown reflects tighter policies to contain inflation and weakening external environment including slower growth in trading partners , tighter external financing conditions and lower commodity prices ”, said Rodrigo Valdes , director of the IMF ’ s Western Hemisphere department .
After reaching 7.8 per cent in 2022 , the IMF expects headline inflation in the region ( excluding Argentina and Venezuela ) to decline to five per cent in 2023 and to 3.6 per cent in 2024 . This will be driven by weakening external and domestic demand , easing global supply constraints and the lagged effects of currency appreciation in some countries .
“ The risks to the outlook appear more balanced compared to April 2023 , although they remain titled to the downside . External risks include lower growth in main trading partners ; commodity price volatility ; new inflationary shocks ; renewed turbulence in global financial markets and an intensification of geopolitical tensions ,” cautioned the IMF .
At the regional level , downside risks relate to a potential for reemergence of inflationary pressures and increased social tensions . Climate-related shocks also pose important challenges over the short and medium term especially for Central America ; Panama ; the Dominican Republic sub-region and the Caribbean , including through their impact on outward migration .
The region should also prepare for the impact of El Niño as this climate phenomenon could negatively impact economic activity through floods in Ecuador and northern Peru , and through droughts in Colombia , Central America and southern Peru . Luckily , said the IMF , other countries like Argentina , Paraguay and Uruguay may benefit from a much-needed increase in precipitation .
Recommendations and fiscal policy
“ As inflation comes down and growth slows , policymakers will need to calibrate policies carefully . The swift response of the region ’ s central banks played a key role in controlling inflation and most are well placed to move forward with gradually easing their tight monetary policy stances , although they should remain attentive to risks ,” said the IMF .
“ Prudent easing will continue to require a careful balance between placing inflation on a durable downward path while minimizing the risk of a prolonged period of low growth . Key to achieving the right balance is the pace of monetary easing and a proper assessment of the impact of past tightening on inflation , as monetary policy operates with lags .
24 | ismr . net | ISMR December 2023 / January 2024