ECLAC reduces the growth forecast for Latin America to 1.8% this year

The Russian invasion of Ukraine is limiting economic growth worldwide and in Latin America, a region whose growth forecast for this year went from 2.1% to 1.8%, according to estimates by the Economic Commission for Latin America and the Caribbean of the United Nations (ECLAC).

The armed conflict "has exacerbated inflationary problems, increased volatility and financial costs," says the Commission, which has a negative impact on the economy.

Brazil will grow 0.4%, while Mexico will see an increase of 1.7%, both forecasts lower than those anticipated by the organization at the beginning of the year.

Meanwhile, Argentina's GDP is expected to grow 3%, Chile's 1.5% and Colombia's 4.8%.

"It is also expected that the dynamics of world trade will be negatively affected by the armed conflict, which would cause a decrease in external demand from Latin America and the Caribbean," says the ECLAC statement.

The war in Ukraine caused an increase in the prices of raw materials, mainly hydrocarbons, metals, food, and fertilizers, which is why inflationary pressures have increased.

As of March 2022, regional inflation is estimated at 7.5%.

“This price increase is on top of cost hikes seen due to supply chain disruptions and exacerbated shipping disruptions.

These increases have resulted in a boost in inflation worldwide, which in some countries has reached historical highs in 2022. Given the persistence and increase in inflation, greater increases in interest rates are expected in developed countries”, assured the organization.

As of March 2022, regional inflation is estimated to have reached 7.5%.

On top of geopolitical factors, global financial conditions will also put pressure on governments, since the US central bank, the Federal Reserve (Fed), has initiated an increase in its reference interest rate, which influences financing costs Worldwide.

“The monetary adjustment of the northern countries has accentuated the tightening of global financial conditions that has been observed in recent months, causing greater volatility in the financial markets, which, together with the increase in global risk aversion as a result of the conflict in Ukraine, has harmed capital flows to emerging markets”, ECLAC pointed out.

In response to inflation and the Fed's actions, central banks in Latin America have also embarked on a cycle of interest rate hikes, which may limit credit growth and thus economic activity.

"These trends could become more pronounced in the coming months, especially if inflationary pressures persist in developed economies, and the central banks of these economies deepen contractionary monetary policies, including increases in monetary policy rates and the reversal of monetary stimuli" said ECLAC.

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