Due to global inflation and high rates, the IMF foresees a strong slowdown in the Latin American economy this year

The Monetary Fund warned about over-indebtedness and the persistence of high inflation in many economies. REUTERS

The International Monetary Fund forecasts that the region’s economy will experience a marked brake in its growth rate compared to last year, in the midst of a global context that does little to help economic activity in Latin America, between the high inflation overall and readjustment of interest rates that the main economics decided to combat the rise in prices.

The organism that drives Kristalina Georgieva updated its economic projections -the latest dating from last October- and recalculated its estimate of world GDP growth for 2023. Thus, it measured that the global economy will go from growing a 3.4% in 2022 to 2.9% in 2023. The projection for the Latin American region is tougher: it will cut more than half of the expansion of 3.9% in 2022 to 1.8% in 2023.

“The rate hike Central bank interest rates to combat inflation and Russia’s war in Ukraine continue to weigh on economic activity. The rapid spread of Covid-19 in China slowed growth in 2022, but the recent reopening has paved the way for a faster-than-anticipated recovery. World inflation is expected to decline from 8.8% in 2022 to 6.6% in 2023 already 4.3% in 2024, levels still higher than those observed before the pandemic (2017–19) of around 3.5%”, estimated the global report published tonight by the agency.

In this sense, the report analyzed which are the elements that could negatively influence the prospects for the coming months. “Among the upside risks, a stronger boost from pent-up demand in many economies or a faster drop in inflation are plausible. Among the downside risks, severe health developments in China could slow the recovery, Russia’s war in Ukraine could intensify and a tightening of global financing conditions could exacerbate tensions over over-indebtedness”, warned the IMF.

Source: World Economic Outlook (IMF)
Source: World Economic Outlook (IMF)

In this sense, he warned that “financial markets could also suddenly re-determine prices in response to adverse developments in terms of inflation, while geopolitical fragmentation could slow down economic progress.”

Looking country by country, among the emerging economies the Monetary Fund considered that Brazil, one of Argentina’s main trading partners, will go from growing 3.1% in 2022 just 1.2% in 2023. Brazil’s expansion perspective is key for the domestic economy, since its growth rate determines to a certain extent the own calculations of Argentine economic activity.

The report published this Tuesday did not change the projections on the Argentine GDP by 2023, present in the financial program in force and signed in March of last year, so it maintains its expectation of an improvement in 2% of GDP.

As explained at a press conference by Pierre Olivier Gourinchas, chief economist of the IMF, “Argentina will grow by 2% and we have not made any changes since our previous review in October 2022.”

In order for Argentina not to be able to grow above that level, there was “a combination of two factors: a slowdown in the world economy that will also occur in Argentina and the restrictive policies applied in the fiscal and monetary spheres to handle the high inflation, which last year was close to 100%,” said Gourinchas.

“It is very important that the objectives of these fiscal and monetary policies are implemented within the framework of the program that Argentina has with the IMF to help anchor inflation and stabilize the country’s economy,” he added.

Sergio Massa with Gita Gopinath, Deputy Director of the IMF
Sergio Massa with Gita Gopinath, Deputy Director of the IMF

“In most economies, in the face of the cost of living crisis, the priority remains to achieve sustained disinflation. With more restrictive monetary conditions and a slower growth rate that could affect financial and debt stability, it is necessary to resort to macroprudential tools and strengthen the frameworks for debt restructuring,” the report noted.

Regarding inflation, the IMF considered that “monetary policy is beginning to work. There are signs that monetary policy tightening is starting to cool demand and inflation, but the full impact will likely not materialize before 2024. The headline level of global inflation appears to have peaked in the third quarter of 2022″, he remarked.

“But core inflation has not yet peaked in most economies and remains well above pre-pandemic levels. It has persisted in an environment of second-round effects from previous cost shocks and labor shortages with strong wage growth as consumer demand has remained resilient. Medium-term inflation expectations remain broadly anchored, but some indicators point upwards”, he alerted.

The drop in growth prospects for this year is due, according to the Monetary Fund, “to the increase in central bank rates to combat inflation – especially in advanced economies – as well as the war in Ukraine. The decline in growth in 2023 compared to 2022 is due to advanced economies; in emerging market and developing economies, growth is estimated to have bottomed out in 2022.

For the region, the Monetary Fund estimated that in 2024 the improvement will be 2.1%, but it is a number that was readjusted downwards: “Although with a downward revision of 0.3 percentage points due to financial conditions more restrictivethe lower prices of exported raw materials and reductions in the growth of trading partners”, he concluded.

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