A woman and children in the Jardim Gramacho favela, in Rio de Janeiro, Brazil, on October 8, 2022. Bruna Prado (AP)
The clouds in the Latin American economy will continue, warns the International Monetary Fund (IMF).
In its most recent regional report, the agency points out that while Latin American countries continue to deal with the effects of the pandemic and Russia's invasion of Ukraine, they face a third shock: the tightening of financial conditions globally.
“Capital inflows to emerging markets are slowing and borrowing costs are rising.
For Latin America, these factors translate into a slowdown in activity as indebtedness increases, costs weigh on domestic credit, private consumption and investment”, the document refers.
The IMF mentions that at the beginning of 2022 the increase in the prices of raw materials attracted investors eager for the supply of food and energy.
The IMF forecast for Latin America and the Caribbean stands at 3.5% for this year, however, for 2023 it foresees a drop to 1.7%.
Commodity exporters - South American, Mexican and some Caribbean economies - are likely to see their growth rates halved next year, as lower commodity prices amplify the impact of rising prices. Interest rates.
The economies of Central America, Panama and the Dominican Republic will also slow down as trade with the United States and incoming remittances weaken.
The IMF is blunt in its diagnosis: Latin America will continue to face high inflation for some time.
The average inflation rate in Latin America and the Caribbean will increase to 14.6% by the end of this year, to slow down to 9.5% in 2023, the IMF indicated, and most countries will register inflation rates above the objectives of their central banks.
"Price pressures have recently been amplified, affecting items in consumer baskets that go beyond food and energy."
The agency forecasts that the inflation rates of Brazil, Chile, Colombia, Mexico and Peru will be around 7.8% by the end of 2022 and will remain high (by 4.9%), even above the tolerance bands of central banks by the end of next year.
However, it also points out that not maintaining a restrictive policy could have high costs.
"Going forward, monetary policy must maintain its course and not relax prematurely," reads the report prepared by the director of the IMF's Western Hemisphere Department, Ilan Goldfajn, together with economists Santiago Acosta Ormaechea, Gustavo Adler and Anna Ivanova .
The IMF does not avoid the fact that the increase in world interest rates will put the financial system, public and private, of the regional economies to the test.
“Corporate debt has grown considerably over the last decade, especially outside the banking system.
Surveillance of this type of vulnerability will be key to identifying possible sources of stress and taking early action measures, "says the agency.
Central banks in Latin America were among the first to raise interest rates after the start of the pandemic, and Brazil began an adjustment cycle in March 2021. While the region's high levels of international reserves and the strength of the central bank, credibility will help mitigate the impact of tighter financial conditions, increased borrowing, costs will test public finances through higher interest payments, as public debt and financing needs remain high.
Follow all the international information on
and
, or in
our weekly newsletter
.