Latin America in the face of an “uncertain” macroeconomic environment, says the IEE

Growth prospects in Latin America and the Caribbean face an uncertain and challenging environment for macroeconomic stability and the dynamism of its activity, despite having shown a resilient performance in the face of the ‘shocks’ caused by Russia’s invasion of Ukraine in 2022.

The region faces the risk that this slowdown will intensify in 2023, in a scenario of high inflation rates, monetary tightening and geopolitical tensions that endanger the economic outlook worldwide, according to the Institute for Economic Studies. (IEE), at the opening of the Ibero-American Business Meeting.

According to the entity, the crisis caused by the pandemic involved an effort in public accounts through expansive policies, which have increased the countries’ debt levels, which is why the fiscal margin has been considerably reduced.

"Thus, both the World Bank (WB) and the International Monetary Fund (IMF) report agree that the economy of Latin America and the Caribbean is immersed in a process of deceleration in 2023"added the IEE document, which was presented by its president, the Spanish Íñigo Fernández de Mesa.

The entity considered that, given the fragile economic situation in the region, any new event, such as higher than expected inflation, sharp increases in interest rates, the resurgence of covid-19 or greater geopolitical tensions, could intensify the slowdown.

In this context, the countries of the region are facing a period of several years of slow growth, a heavy debt burden and little investment.

For the IEE it is "foreseeable"in this context, that investments go to advanced economies that offer more security, although they also face high levels of public debt and rising interest rates.

A COMPLEX SITUATION

The report, in general terms, presents a situation "complex" external and internal.

"From the external front, world growth will be weaker than expected, affecting the prices of basic products, which undermines the economic activity of exporting countries"highlighted the IEE.

He added that a further tightening of financial conditions could generate tensions in the most vulnerable economies, while inflation could be more persistent than expected, which would raise expectations of a slowdown in the long term.

The slowdown that is expected throughout 2023 is due, in part, to the impact of the tightening of the monetary policy that is being applied to control inflation. It is also influenced by a not very encouraging world panorama, which is going to register less dynamism.

"Somewhat lower growth in the United States and China will dampen demand for exports, while higher US interest rates are likely to mean that financial conditions remain tight and local currencies depreciate against the dollar, the Institute of Economics forecasts. Economic Studies, linked to the Spanish Confederation of Business Organizations (CEOE).

TRAINING AND EDUCATION

The institute proposes that in order to change perspectives, at least in the medium and long term, Latin America and the Caribbean must make a "determined and sustained commitment" for the better training and education of the population, since its effects result in an increase in productivity, greater investment and, ultimately, more progress.

"If we add to this the low level of investment in research, development and innovation (R+D+i), the diagnosis of growth factors offers a clear signal that the region has to make a very determined commitment in these scopes"maintains the report.

In that order, the entity considers that one of the aspects to increase the potential development of the region is to achieve an attractive and effective institutional framework, where regulatory quality, business freedom or property rights are key elements.

"No one can deny that business freedom and, in its broadest sense, economic freedom are factors that drive investment and promote activity, and, with both, employment and the well-being of societies."says the IEE.

Regarding this, the report ensures that to ensure that private initiative prospers, it is necessary to maintain clear, simple legislation that is respectful of the freedom of enterprise, which, in turn, will favor the opening of economies and contribute development and progress. to countries.

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