Buenos Aires Weather | War in Ukraine and rising prices lead to lower growth forecasts for Latin America

Economic growth in Latin America and the Caribbean will be weaker than expected at 1.8% this year due to the war in Ukraine, a UN body has predicted.

In 2021, the region’s gross domestic product (GDP) was 6.2%, and the United Nations Economic Commission for Latin America and the Caribbean (CEPAL/CEPAL) predicted January growth of 2.1% for 2022.

But in a statement on Wednesday, he adjusted the figure down, saying the war has increased inflation, raising financial volatility and costs.

“The economies of Latin America and the Caribbean face a complex conjuncture in 2022 due to the war between Russia and Ukraine, which introduces a new source of uncertainty for the global economy,” he said. he declares.

The economies of South America are expected to grow by 1.5%, Central America and Mexico by 2.3% and the Caribbean (excluding Guyana) by 4.7%, according to the UN agency, according to ECLAC.

“The war in Ukraine has also caused an increase in the prices of raw materials, mainly fossil fuels, some metals, food and fertilizers,” he added.

Along with rising costs due to supply chain disruptions, rising prices have caused inflation in some countries to hit historic highs in 2022. As growth slows, the agency also highlighted guard against higher unemployment rates.

Last month, regional inflation was estimated at 7.5% and many central banks forecast high and sustained inflation for the rest of the year. JP Morgan forecast this week that inflation in Argentina will reach 67% – well above government forecasts of between 38 and 48%.

For Brazil, the region’s largest economy, ECLAC predicts growth of 0.4% for 2022.

His projection for Mexico was 1.7%, for Argentina 3%, Venezuela 5%, Colombia 4.8%, Chile 1.5%, Peru 2.5% and Costa Rica by 3.7%.

IMF projections

The International Monetary Fund’s latest forecast, released this week, forecast Latin America and the Caribbean’s economy to grow 2.5% this year, also citing heightened uncertainty about its outlook and rising prices in because of the war in Ukraine.

Although the multilateral lender expects Brazil’s economy to grow by 0.8%, Mexico’s by 2%, Colombia’s by 5.8%, Chile’s by 1.5%, of Peru by 3% and that of Argentina by 4% this year, these rates represent “very significant reductions compared to their previous rates”. double-digit rates for the year,” IMF staff said.

By region, South America will see growth of 2.3% this year, the Fund said, while Central America, Panama and the Dominican Republic expect growth of 4.8%.

For the Caribbean, the IMF distinguished economies dependent on tourism, hard hit by the pandemic, with 3.2%, and exporters of raw materials (Guyana, Suriname and Trinidad and Tobago), with 20.2%.

“Even before the war, the region’s recovery from the growth-sapping pandemic was losing momentum,” the Fund’s economists wrote.

The impact is now being felt in rising food and energy prices, forcing countries to take action “to soften the blow to the most vulnerable and contain the risks of social unrest”, the IMF said. .

Several countries have taken measures to limit the impact on vulnerable groups in various ways, ranging from “reductions in taxes and import tariffs to price caps or social transfers”.

About 40% of countries have introduced new measures, mainly on the fiscal side, “with an estimated average budgetary cost equal to 0.3% of gross domestic product”, analyzed the Fund.

Providing recommendations, the IMF said governments should support low-income households and allow “domestic prices to adjust to international prices”.

In addition to inflation, other risks lurk, the report says, citing a possible escalation of the war in Ukraine and a rise in interest rates in the United States, which could fuel an outflow of capital from a region. which needs investment.

The blog’s authors – economists Santiago Acosta-Ormaechea, Ilan Goldfajn and Jorge Roldós – advocate protecting “spending on social programs, health, education and public investment” while “implementing reforms tax”.


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