ECLAC projects a slowdown in the regional economy during 2023

The Economic Commission for Latin America and the Caribbean (ECLAC) published this Thursday its economic projections for 2023, which foresee a slowdown in economic growth for the entire region.

In a context of increasing external uncertainties and internal constraints, the Commission expects growth to reach the 1.2%.

In the midst of the turmoil in the financial sector, high inflation, the current effects of the Russian invasion of Ukraine and three years of COVID, the countries of the region face once again in 2023 a limited room for maneuver regarding fiscal and monetary policy.

As in the rest of the world, inflation in the region shows a downward trendbut it will remain at high levels compared to those before the pandemic.

The Commission anticipates that they will stop increasing interest rates in several countries of the region, but its effects will be reflected more strongly this year, both in consumption and in investment.

In addition, given the recent global financial volatility evidenced by the problems in the banking system of developed countries, the organization foresees that the countries will continue applying measures to stabilize the banking system.

In the fiscal sphere, the authorities have little room for maneuver due to high levels of public debt. In this context, the Commission warns that measures will be required to strengthen the collection and redistributive capacity throughout the region.

All regional activity falls with specific exceptions in Mexico and Central America

The commission estimates that all subregions will have lower growth in 2023 compared to 2022.

Thus, South America will grow by 0.6% in 2023 (for 3.8% in 2022), the group made up of Central America and Mexico will increase by 2% (compared to 3.5% in 2022) and the Caribbean (not including Guyana) will rise 3.5% (with 5.8% in 2022).

The slowdown in South America would be caused by the drop in the prices of basic products and by the restrictions on the space that domestic policy has to prop up activity.

In the Caribbean, the slowdown is mainly due to the impact of inflation both on real income, and with it consumption, and on production costs, with a negative effect on the competitiveness of exports of both goods and tourism.

Although this year’s growth represents a contraction compared to 2022, for the economies of Central America and Mexico, in some cases there have been upward revisions compared to what ECLAC forecast at the end of last year. This situation is due to the growth of the United States, the main trading partner and main source of remittances from their countries, which would affect both the external sector and private consumption.

The 2023 growth projection for the region is subject to downside risks given the possibility that the turbulence in the global banking system -or in the financial system as a whole- could reappear and intensify, which would result in a more persistent tightening of the world financial conditions, with the consequent impacts on the access and cost of financing.