Slowdown in the US will affect the economies of Latin America

The low economic growth expected for the United States in 2023 will further affect the Latin American economies that they will have this year, as predicted by the World Bank. a growth of 1.3% well below the average growth of 3.6% last year.

Although the economy of the world’s leading power is still strong with robust employment, but inflation of 6.5% remains high, so the Federal Reserve “will continue to apply the brake” as explained to the voice of america in Washington the economist Isaac Cohen.

The rises in interest rates – deepens – are an adjustment with which the United States seeks to cool the engines of the economy whose machinery was heated by adjacent phenomena such as the supply crisis, the Russian war in Ukraine and the lags that still remain from COVID-19, which together contributed to the increase in the cost of food, goods and services.

Cohen points to one of the core problems for families and that is that “salaries are not increasing the same” so with the increases they are left “behind” this in the family dynamics indicates that they are reflected in the “difficulties when they go to the market , when they put gasoline, because they feel the blow with the prices ”.

The projections made by the World Bank indicate that the United States will end 2023 with a growth of only 0.5%, which translates into 1.0%, a result that would be 1.9 percentage points less than what had previously been forecast by the World Bank. International Monetary Fund (IMF) for the world’s leading economy.

“I think that as long as employment is holding up, the White House has justified reasons to say that we are not down yet, the economy is not in a downturn, but that there are still areas of strength,” says Cohen.

Under this panorama, the Latin American region, whose economic dynamics –in most countries- falter when there is turbulence in the United States, worsen before the global projections made by the multilaterals in Washington.

The World Bank projects that the world economy as a whole will only grow 1.7% this year and by 2024 it would rise to 2.7%. And Latin America would reflect an average growth of only 1.3%.

“Emerging and developing countries face a multi-year period of slow growth fueled by a heavy debt burden and low investment; at the same time, global capital is being sucked into advanced economies facing extremely high levels of public debt and rising interest rates,” World Bank President David Malpass said this week.

As the main collateral effect in the region, it is expected that a slow economy with little business investment would bring setbacks in areas where progress had been made, such as education, health, fight against poverty and the creation of infrastructure; to this must be added the effects of climate change, according to the agency.

For Americans, President Joe Biden has said that even though prices remain high, “we have a lot more work to do, but things are looking up and going in the right direction,” registering another half percentage point drop in the inflation at 6.5%; but the 2% goal is still far away.

When does a recession hit?

Economic experts consider that the economic recession looms when economic growth is reflected in negative for at least two consecutive quarters.

However, given the panorama of 2023, the calculations would not indicate a recession, but “slow growth”, the president of the Federal Reserve, Jerome Powell, has said that “I don’t think anyone knows if we are going to have a recession or not . And if we do, whether it’s deep or not, you just can’t tell.”

The World Bank group has considered that the initial projections changed when the world saw the outbreak of Russia’s war against Ukraine at the beginning of 2022, the robustness that was expected with the post-pandemic recovery disappeared and the plans to lower inflation got out of hand. ; in mid-2022 the inflation hit all-time highs up to 9.1% in the US.

Experts agree that – based on projections – the low performance of markets globally with developed economies at the forefront would see a drop not seen since the 1970s.

World Bank economist Carlos Arteta told the voice of america that seeing that forecast for the world’s first economy of 1.9% much less than expected, indicates that “it will be the weakest performance of the United States economy, outside of official recessions, since at least 1970, so It’s a pretty precarious situation.”

This expert also considers that if this downward forecast is fulfilled, affecting all sectors, the remittances sent by workers in the United States, which have maintained a strong upward trend in Latin America for years, would also be affected.

The economist Isaac Cohen summarizes that when reading all this data for a region as vulnerable as Latin America, the first thing that stands out is that “this means that poverty in Latin America is going to increase, because fundamentally if the economies of the region do not grow, the poverty increases”.

And Ayhan Kose, director of the World Bank’s Perspectives Group in Washington, refines that with these projections at hand -in the face of low productivity in investments and markets- they are in themselves worrisome, but that the governments of the region will have to resort to technical and creative to overcome bad weather.

“National policies to promote investment must be adapted to the circumstances of each country,” says the expert, while advising to strengthen the “creation of sound fiscal and monetary policy frameworks and the introduction of comprehensive reforms aimed at improving the investment climate.

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