IMF forecasts slowdown, social unrest in Latin America

Economic activity in Latin America will be reduced from the end of 2022 and in 2023, mainly due to international monetary and financial tightening, and it is essential that countries implement measures that alleviate the impact on the most vulnerable sectors, the International Monetary Fund warned on Wednesday. when disclosing its regional economic forecasts.

“Downside risks dominate the outlook. Financial conditions could be even tighter than they are today. Inflation may prove more persistent,” said Nigel Chalk, Acting Director of the IMF’s Western Hemisphere Department. “The region will face a more challenging 2023. Growth will slow and things could be worse than they currently are.”

The forecasts were revealed at a press conference held in Santiago de Chile and broadcast virtually at a time when the region is facing strong inflationary pressures that could last longer than previously thought.

Following a sharp 7% contraction in 2020 amid the coronavirus pandemic, the regional economy rebounded with 6.9% growth in 2021 driven by the global recovery. The IMF forecasts that the Gross Domestic Product will have an increase of 3.5% this year (3.4% without counting Venezuela), and 1.7% in 2023.

The IMF forecasts are similar to those of the World Bank, which projects growth of 3% this year and 1.6% in 2023.

When they began to show signs of recovery, the economies were affected by the Russian invasion in Ukraine, and now they are hit by the rise in international interest rates, a more pronounced global slowdown and the entrenchment of inflation.

The five main economies in the region will perform below the regional average. The IMF report “Perspectives for the Americas: Navigating more restrictive financial conditions” specifies that the group of Brazil, Chile, Colombia, Mexico and Peru will remain in 2022 at 3.0% growth. Brazil, for its part, by 2.8%; Mexico, 2.1%. The strip of Central America, Panama and the Dominican Republic will do better than the rest of the continent, with 4.7% growth in annual GDP.

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At the regional level, the agency projects that inflation will remain high “for some time” and will be around 14.6% at the end of 2022. In 2023, it would fall to 9.5%. However, the report shows differences by area. This high inflation figure is conditioned by an 18% rise in prices in South America, which contrasts with the 7.8% inflation of the five leading Latin American powers or with the 6% of Brazil and the 8.5% of Mexico.

This is a “higher and more persistent than expected” inflation caused mainly by energy and food shortages in some countries, and by the “unusually rapid” expansion of domestic demand in others, the IMF explained in its report. of 54 pages.

In Latin America and the Caribbean “a drastic fall in the prices of raw materials and social unrest are important risks,” warned the Washington-based organization.

“The deleterious impact of high food and energy prices and slowing growth on vulnerable populations is a recipe for social unrest and cannot be ignored,” Chalk said. “It’s critical to ease the cost-of-living crisis,” she said.

As inflation has not yet subsided, countries must avoid a premature relaxation of monetary policy, recommended the IMF, while advising to advance with an inclusive fiscal consolidation that protects social objectives, promote productivity and eliminate the barriers that hinder the entry and exit of companies, among other measures.

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