World Bank report: Latin America and the Caribbean economic growth may slow down
The World Bank recently released the “Global Economic Outlook Report”, saying that due to factors such as tightening fiscal and monetary policies, limited improvement in labor market conditions, and weakening external support, it is expected that the future economic growth in Latin America and the Caribbean (hereinafter referred to as “Latin America”) will grow. slowing down, growing by 2.6% and 2.7% in 2022 and 2023, respectively.
The report pointed out that in 2021, Latin America will face huge inflationary pressures, and the central banks of the major economies in the region will struggle to achieve their inflation control goals. This round of inflation is mainly attributable to rising global energy prices, increased demand due to economic restart, shortage of electricity supply and food production caused by extreme weather, and currency depreciation and substantial increase in money supply in some countries. The regional economic recovery momentum is uneven, and it will take some countries a long time to get out of the quagmire of the epidemic. On a GDP-weighted basis, by 2023, per capita income levels in Latin America will not only lag far behind developed economies, but will also be lower than those in Asia-Pacific and Eastern Europe and Central Asia.
The outlook for the MERCOSUR countries is worrying due to drought-induced crop losses and political uncertainty. Brazil’s economic growth rate is expected to fall to 1.4% in 2022 and rebound to 2.7% in 2023, due to factors such as sluggish investor sentiment, lower purchasing power due to high inflation, tightening of macroeconomic policies, and falling iron ore prices. In addition, Brazil will hold a presidential election in October this year. The “Brazil Auxiliary” plan launched by the current President Jair Bolsonaro to ensure re-election may make the federal government’s public spending exceed the legal limit, further exacerbating the risk of macroeconomic instability; Argentina’s economic growth rate is expected to fall to 2.6% in 2022, considering the reduction in household spending power due to the reduction of fiscal stimulus measures and fading investment, as well as the delay in the Argentine Fernandez government’s delay in reaching a debt restructuring agreement with the International Monetary Fund; Paraguay In addition to dealing with drought, hyperinflation and rising international interest rates, Uruguay and Brazil, the economic recovery process is also closely related to Brazil and Argentina. While the economies of Chile, Peru and Colombia rebounded strongly in 2021, they are expected to continue to slow over the next two years.
Mexico’s growth rate is expected to fall to 3% in 2022 and further to 2.2% in 2023 due to supply chain tensions that are difficult to resolve in the short term, as well as weak external demand due to slowing U.S. growth and tightening of macroeconomic policies. For the Central America region, the orderly progress of new crown vaccination and the continuous inflow of high remittances make the region’s economy expected to maintain a strong growth trend in 2022, with a growth rate of 4.7%. In addition, some Caribbean countries are expected to achieve economic acceleration in 2022 as tourism gradually picks up.
The report pointed out that the economic recovery in Latin America faces difficulties such as the raging new crown epidemic, the deterioration of the financing environment, the rising pressure on government debt, and the disturbance caused by extreme weather events and natural disasters, but the key lies in whether countries in the region can effectively control the new crown pneumonia epidemic. Even in countries with high vaccination rates, the rebound of the epidemic caused by the new coronavirus mutation is still the biggest challenge hindering the economic recovery. A sudden deterioration in investor sentiment, especially in an environment of rising inflation and high government debt, will trigger capital outflows and test countries’ ability to pay their debts. The stagnation of economic activities caused by extreme weather and natural disasters has not only caused huge obstacles to regional economic recovery, but also seriously affected the lives and livelihoods of people in the region.
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