ECLAC: Slowdown deepens in Latin America with regional growth forecasted at 1,8% this year

The economies of Latin America and the Caribbean face a complex situation in 2022 because of the Russia/Ukraine war with its shadow of uncertainty for the world economy. This is negatively affecting global growth, and at the regional level, lower expected growth will be accompanied by higher inflation and slower employment recovery.

According to new estimates released by the Economic Commission for Latin America and the Caribbean (ECLAC), average growth of 1.8% is anticipated for the region in this context of higher global volatility. South American economies will grow 1.5%, Central America and Mexico 2.3%, while 4.7% growth is expected for the Caribbean economies (excluding Guyana).

According to ECLAC, the conflict in Ukraine will also impact negatively world trade dynamics, causing a decrease in foreign demand for Latin America and the Caribbean produce. The region’s main trade partners – the United States, China, and the European Union– will see lower growth rates than those expected before the conflict began.

In the case of the US, growth will be 2.8% (1.2 percentage points lower than previous projections). Projected growth for China is at 5% (0.7 percentage points less than before the hostilities), and for the EU, growth of 2.8% is expected (1.4 percentage points lower than pre-conflict projections).

The war in Ukraine has also caused an increase in commodity prices, mainly in fossil fuels, some metals, food and fertilizers. This price increase is in addition to higher costs because of disruptions to the supply chains and interruptions in maritime transport. Price hikes have given impetus to world inflation rates, in some countries reaching historic highs in 2022, and in this scenario, higher interest rates in developed countries can be expected.

The United Nations regional commission adds that monetary adjustments in the countries of the North have accentuated the tightening of global financial conditions witnessed in recent months, causing greater volatility in financial markets. Alongside the increase in global aversion to risk resulting from the conflict in Ukraine, this has jeopardized capital flows to emerging markets.

As in the rest of the world, inflationary dynamics have accelerated in Latin America and the Caribbean warns ECLAC. As of March 2022, regional inflation is estimated at 7.5%, and many central banks in the region anticipate sustained high inflation for the rest of the year, especially with increased international energy and food prices, plus disruptions in global supply chains and persistent high transportation costs.

In response to higher inflation, monetary policy in central banks in the region has become more restrictive and the majority have significantly raised interest rates, which in most cases have reached levels similar to those back in 2017.

Source: MercoPress

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