Colombia and Latin America: will there be an economic recession in the region?

Since the beginning of the year the macroeconomic forecast for Latin America for 2022 painted a slowdown scenario, very far from the historical growth registered in 2021, after the ravages of the pandemic.

(See: The reasons why Argentina cannot reduce its fiscal deficit).

This is how from very early on the stage obstacles could already be observed, such as high inflation and the increase in interest rates to combat rising prices. In addition to the bad weather, the winds of the unexpected war in Eastern Europe arrived, which have also played an important role, both for and against, and which also have tested the resilience of the region.

About this, the International Monetary Fund predicted that the region would grow 3% in its GDP by 2022, a clear slowdown compared to the closing of 6.9% registered in 2021.

(See: Is it good to start cutting interest rates in Colombia and the region?).

Likewise, the agency pointed out that in the first months of this year the countries of the region continued with the dragged growth of the end of 2021, but they estimate that this deceleration will take place from the second half.

The truth is that, as the IMF points out, the behavior of the Latin American economies is not uniform and in some cases, the slowdown has already begun to be seen in the second quarter.

So far, few countries in the region have published the performance of their economies in the second quarter of the year, but cases such as Peru, Chile, Mexico and Colombia.

(See: Cuba opens its trade to foreign investment after 60 years).

Among those mentioned, Colombia has the greatest dynamism in the April-June period of this year. However, the analysts consulted shed warning lights on this advance. “You have to look at it very carefully. If it is true that we are growing, we must also take into account that we are comparing ourselves with one of the most difficult times in the recent history of Colombia (the national strike).”, said Alejandro Useche, professor of economics at the Universidad del Rosario.

The second country that grew the most in the mentioned period was Chile, with a rebound of 5.4%, according to data published by the central bank of that country. “It is positive that Chile is growing; it was said that with the change of government other things were expected. Government policies have yet to take hold”, said Guillermo Sinisterra, professor of economics at the U. Javeriana.

According to Chilean analysts, in the southern country there would already be talk of a slowdown, since in the first quarter the rise in activity was 7.4%.
A similar case could be that of Peru, where the economy grew by 3.84% in the first quarter, while in the second period it was 3.30%. For Useche, the country’s political instability may take its toll towards the end of the year.

Mexico, for its part, had a small rebound from 1% in the first quarter to 1.9% in the second period, which would be the case of the second largest economy in the region that resists falling into recession, pressured by the current situation in its neighbor and most important ally, the United States.

(See: The GDP projection for 2023 decreased from 3.2% to 2.2%).

On the other hand, Costa Rica grew by 5.3%, a “impressive data” for the size and characteristics of its economy, where the electrical matrix is ​​leveraged on clean energy. Despite the good numbers, the central bank of that country has already reported that it has entered a slowdown process for the remainder of 2022 and 2023.

Both analysts agree that by the end of the year, growth in The region would tend to slow down, something “usual” as a result of the comparison between the periods of record growth in 2021.

Both Useche and Sinisterra agree that there will not be an economic recession in the region today, beyond the expected slowdown. They recalled that for a recession there should be two quarters of contractions, but they do not see such an event viable at present. “There will be a slowdown, but it is not a cause for concern or a recession. It is usual for the cycle to adjustSinister said.

For Useche, there will be several national and international factors that will determine, one of those rate increases.

ROBERTO CASAS LUGO
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