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The agency ensures that, due to the rise in interest rates in advanced economies and persistent inflation, central banks will maintain the most restrictive monetary policies, affecting the currencies of Latin America and the Caribbean and creating risks of financial crisis in the emerging markets.
The World Bank assured that Latin America will grow only 1.5% in 2023, a drop compared to the growth of 3.7% registered last year, and that it is argued in the fall in the price of raw materials and more restrictive policies of the central banks.
In its new World Economic Outlook report, the agency improved its previous growth projection by two tenths, although it reduced them by 4 tenths in 2024 and affirms that it will only grow 2%.
“In the case of Latin America, both the external and internal drivers of growth in the region point to a slowdown this year,” said the bank’s chief economist, Indermit Gill.
In Brazil, the region’s largest economy, GDP will slow to 1.2% in 2023, rising slightly to 1.4% next year. For Mexico, the agency forecasts that growth will be moderate this year and places it at 2.5%, but gives bad marks for Argentina where it forecasts a fall of -2% this year.
“Rapid interest rate rises, such as those that have occurred in the United States in the past year, are correlated with a higher probability of financial crises in emerging and developing countries,” the report cited.
This due to the prolonged effects of the pandemic, the war in Ukraine and the tightening of monetary policy in the main economies, which are causing a global slowdown.
This weak global growth weighs on commodity prices and has an impact on Latin American exporting countries. “The impact of rate increases is starting to take effect,” the official said.
“Central America’s growth is expected to slow to 3.6% in 2023, with a slight increase to 3.8% in 2024. Remittances and tourism are expected to support activity in the region. In the Caribbean region, in addition to the oil boom in Guyana, the rest of the countries in the subregion are expected to grow at an average rate of 3.3% in 2023, driven by the continued recovery of tourism and the growing volume of remittances,” the report cites.
“It may happen that the currencies of the Latin American and Caribbean region depreciate with respect to those of advanced economies, which would increase the costs of debt service and further increase local inflation,” they added.
In this report, the lender recalls that “social unrest and political uncertainty have persisted in several countries” in Latin America and the Caribbean, which “has weakened consumer and investor confidence.”
with EFE
