ECLAC expects a slowdown in growth in Latin America and the Caribbean in 2023, with a projected expansion of 1.4%

The Economic Commission for Latin America and the Caribbean (ECLAC) reported today through a press release that growth of 3.2% is expected for 2022, higher than that indicated last August, but for next year the agency expects that the slowdown is accentuated in Latin America and the Caribbean, with growth of 1.4% in 2023, in a situation subject to important restrictions, both external and domestic.

The war between Russia and Ukraine negatively affected global growth -and with it the external demand that the region faced this year- along with accentuating inflationary pressures, volatility and financial costs. The greater aversion to risk, together with the more restrictive monetary policy by the main central banks of the world, harmed capital flows to emerging markets, including Latin America, in addition to propitiating depreciation of local currencies and making it more onerous to obtaining financing for the countries of the region.

According to ECLAC, in 2023 the countries of the region will once again face an unfavorable international context, in which a slowdown in both growth and global trade, higher interest rates and less global liquidity are expected.

Domestically, the countries of the region will again face a complex environment for fiscal and monetary policy in 2023. In the monetary area, the increase in inflation led central banks, as in most of the world, to increase policy rates -in some cases substantially- and reduce the growth of monetary aggregates. Although this process is expected to come to an end in 2023 -to the extent that inflation expectations in the countries are anchored-, the effects of this restrictive policy on private consumption and investment will be present during 2023.

In the fiscal area, public debt levels will remain high in a large number of countries. In a context of high demands for public spending, measures will be required to strengthen fiscal sustainability and expand fiscal space by strengthening public revenues.

All the subregions would show lower growth next year, according to the new ECLAC projections. South America will grow by 1.2% in 2023 (3.4% in 2022), the group made up of Central America and Mexico will grow by 1.7% (compared to 2.5% in 2022) and the Caribbean it will grow by 3.1%, not including Guyana (compared to 4.3% in 2022).

In South America, some countries are particularly affected by the low dynamism of China, which is an important market for their goods exports. Such is the case, for example, of Chile, Brazil, Peru and Uruguay, which allocate more than 30% of their merchandise exports to China (40% for Chile). South America will also be affected by the drop in the prices of basic products and by the restrictions on the space that public policy has to support activity. High inflation has impacted real income and the effects on private consumption have already been observed in some countries as of the second half of this year, ECLAC warns.

For the economies of Central America and Mexico, the low dynamism of the United States, the main trading partner and main source of remittances for their countries, would affect both the external sector and private consumption. In this case, however, the lower prices of basic goods would work in their favour, since several of them are net importers of food and energy. Finally, in the Caribbean economies, inflation has impacted not only real income and thus consumption, but also production costs with a negative impact on the competitiveness of exports of both goods and tourism, the Commission notes.