IMF expresses fears about LATAM economy

Latin America showed resilience in the face of global challenges in 2022, with the region’s economy expanding by almost 4 percent, employment recovering, and the service sector bouncing back from the pandemic’s impact.

According to the latest reports, central banks’ efforts and lower global food and energy prices have helped reduce inflationary pressures across many countries. However, core inflation, excluding food and energy, remains high in Brazil, Mexico, and Chile, at around 8 percent, with somewhat higher levels in Colombia and lower levels in Peru.

Despite these positive developments, 2023 is shaping up to be a difficult year for Latin America, as growth is expected to slow down to just 2 percent, facing challenges such as higher interest rates, declining commodity prices, slowing job creation and consumer spending, and weakened consumer and business confidence.

The region’s growth will also be impacted by the slowdown in trading partners, particularly the US and the euro area, along with the continued risk of tighter-than-anticipated financial conditions and the ongoing conflict in Ukraine.

Additionally, the process of bringing inflation back to the central banks’ target levels is expected to be a long and risky one, subject to increasing wage pressures.

This economic slowdown, combined with high inflation and global uncertainty, means that many individuals in the region will experience a decline in their living standards and increased anxiety about their future. The pandemic has only exacerbated existing social tensions, as the poorest people and the region’s middle class bear the brunt of the economic fallout.

Restoring macroeconomic stability and boosting growth through structural reforms is crucial for reversing the negative effects of the pandemic, however, finding common ground for reforms amid social tensions will be a daunting task. The possibility of unrest and political paralysis also threatens to erode confidence and further weigh on economic activity.