The slowdown in growth reduces the standard of living in Latin America, says the IMF

The standard of living of many Latin Americans will fall this year due to slowing growth, high inflation and global uncertainty, the International Monetary Fund (IMF) warns this Wednesday.

"2023 is likely to be a challenging year for the region"which will grow 1.8% (compared to the 1.7% forecast in October).

This is mainly due to higher interest rates -which make credit more expensive-, and the fall in the prices of raw materials -which the region exports-, explain in a blog Gustavo Adler, Nigel Chalk and Anna Ivanova, from the Department of IMF for the Americas.

The Fund expects Brazil to grow 1.2%, Mexico 1.7%, Argentina 2%, Bolivia 2.9%, Colombia 1.1%, Ecuador 3%, Paraguay 4.3%, Peru 2.5%, Uruguay 3.6%, Venezuela 6.,%, Costa Rica 2.9 %, Dominican Republic 4.3%, El Salvador 1.7%, Guatemala 3.4%, Honduras 3.5%, Nicaragua 3%, Panama 4% and Haiti just 0.3%.

Chile is the only country in the region whose economy will contract this year, by 1.5%.

Inflation subsides but remains high

Inflation is receding in many countries, although it will remain high in some such as Mexico (4.8%), Brazil (5.7%), Colombia (7.3%), Chile (5%), Uruguay (7.2% ), Honduras (6.2%) or Nicaragua (6.1%). And it continues to be at stratospheric levels in Argentina, with forecasts of 60% after almost 95% in 2022, or in Venezuela, with 150%.

Central bank intervention, cooling the economy by making the cost of money more expensive, does its thing. But core inflation, which excludes volatile prices like food and energy, will still remain high, at around 8%. in Brazil, Mexico and Chile, and even a little more in Colombia.

"Slowing growth, high inflation and global uncertainty mean many people in the region will see their standard of living decline this year and likely face increased anxiety about their future."say the experts on the blog.

The growing social discontent, which was exacerbated during the pandemic, and the loss of confidence in public institutions, have persisted in the region for some time.

And it is that the poorest were the most affected by the economic consequences of Covid despite government aid, "as evidenced by the considerable increase in poverty".

The increase in food insecurity is, according to the blog’s authors, another symptom of the socioeconomic effects of the pandemic.

fair taxes

The instability not only hits the poorest but also the middle class, although to a lesser extent.

"Many small businesses struggled during lockdowns, and wages for middle-income workers were eroded by subsequent price increases"explain the authors of the article.

The continued possibility of unrest can in turn erode confidence and affect economic activity.

To change the wind, experts recommend carrying out structural economic reforms, although they recognize that it will be "an uphill battle".

According to the IMF, the objective of governments should be to stimulate growth and meet the social needs of part of the population.

To achieve this, central banks must continue to lower inflation steadily. "stubborn". Interest rates are not expected to rise further this year in some countries, although they will remain high "for some time".

Governments must allocate more funds to the poor and seek a reduction in public debt, without losing sight of the fact that confidence in their management will continue to decline unless "make the rich pay their fair share of taxes".

"These reforms will be the main means, over time, to raise the standard of living" of the inhabitants of Latin America and the Caribbean, conclude the authors of the article, published in the framework of the review of economic forecasts of the IMF.

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