The IMF pays attention to the burden of inflation in Latin America

A person places new prices for meat on a blackboard in a market in Buenos Aires, in January 2022, Enrique García Medina (EFE)

The aftermath of the war in Ukraine will weigh down the growth of Latin America.

The region's main challenge will be to control inflation, triggered by rising international food and energy prices.

The outlook is not the best, warns the International Monetary Fund (IMF), which on Tuesday presented a new outlook report in Washington that updates the January data.

Global growth will be 3.6% in 2022 and 2023, down 0.8 percentage points and 0.2% percentage points, respectively, from their forecasts three months ago.

For Latin America there will be no changes, and growth will remain "around 2.5%" for the next two years.

But that doesn't mean there will be good news.

The problems will come from the side of inflation and the possibilities of reaction from countries that already have significant fiscal redundancies, as a result of the incentives they distributed during the covid-19 pandemic.

The IMF estimates 5.7% inflation for this year in advanced countries, but raises the forecast to 8.7% in emerging countries, the group that includes Latin American economies.

The figure represents 2.8% more than before the Russian invasion of Ukraine.

The blame lies with the rise in energy and food prices, which hits the trade balance of importers and also puts pressure on producers by transferring export prices to domestic markets.

"The growing inflationary pressure can also lead the authorities to resort to subsidies or other forms of support to households or companies," says the Fund, a decision that would further aggravate the fiscal health of Latin American countries.

"With fewer direct connections to Europe, the region is expected to be more affected by inflation and the tightening of [fiscal] policies," warns the IMF in the world economic outlook (WEO) report. .

“Brazil has responded to rising inflation by raising interest rates 975 basis points over the past year, which will weigh on domestic demand.

To a lesser extent, this is also the case in Mexico.

Forecast downgrades for the United States and China also weigh on the prospects for the region's trading partners,” he continues.

The Fund acknowledges that "the fluid international situation [as a result of the war in Ukraine] makes quantitative forecasts even more uncertain than usual."

"However," he warns, "some channels through which the war and associated sanctions will affect the global economy seem relatively clear, even if their magnitudes are difficult to assess."

The commercial isolation of a good part of the Latin American countries will not keep it safe, due to "financial restrictions and the greater risks of capital outflows."

"The war in Ukraine," adds the IMF, "has brought to light a series of medium-term structural problems" that will be a major challenge for emerging markets.

The list of obstacles is long: the possibility that the geopolitics of energy security put the climate transition at risk;

the fragmentation of capital markets and the international payment system and the creation of blocks of digital currencies.

The IMF makes a particular warning about the widespread use of cryptocurrencies, whose value “has skyrocketed following the introduction of sanctions against Russia”.

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