Across the globe, there is already a perceived need to prepare for a recession, or at least a sharp slowdown in the economy. The signs of this event were expected after a “u” behavior of the Gross Domestic Product (GDP) of several economies, including a few countries in Latin America, one of the regions that would be most affected by the upcoming scenario, touching, especially to Chile and Colombia.
At the end of last year, the developing countries of this continent that grew the most were Guayana, with 19.9%; Panama, with 15.3%; Peru, 13.3%; Honduras, with 12.5%; Dominican Republic, with 12.3% and Chile, with 11.7%. Cut to the first quarter of 2022, countries like Colombia already show a positive rebound in GDP with 8.5%, followed by Chile, with 7.2%; Argentina, with 6%; Peru, with 3.84%; Mexico, with 1.8% and Brazil, with 1%.
However, an inflation that registers new records throughout the world every time it is measured, added to the constant increase in interest rates by central banks and the negative effects of the invasion of Ukraine by Russia, have generated what what experts call “the perfect storm”.
According to the World Bank, finances around the world are entering what could become a prolonged period of weak growth, raising the risk of stagflation, with potentially damaging consequences for both middle-income and low-income economies. low income
Global economic performance is forecast to decline from 5.7% in 2021 to 2.9% in 2022, considerably less than the 4.1% forecast in January. In fact, according to the agency, this year, the per capita income level of developing economies will be almost 5% below its pre-pandemic trend.
For now, Brazil’s economy is projected to grow 1.5% by the end of this year, where the strong start to the year is expected to dissipate due to double-digit inflation and stagnant investment and its growth slowing. notably, reaching only 0.8% in 2023. Likewise, Mexico will expand 1.7% in 2022 and 1.9% in 2023 (see graph).
In addition, while a country like Argentina would grow 4.5% in 2022, despite the fact that, with the acceleration of inflation, macroeconomic stability remains elusive, in Chile and Colombia, growth will slow down sharply as the Post-pandemic recovery leads to policy tightening. In Peru, increased mining output will support growth, but uncertainty will weigh on investment.
“The war in Ukraine, lockdowns in China, supply chain disruptions and the risk of stagflation affect growth. For many countries it will be difficult to avoid recession. The markets are expectant, so it is urgent to promote production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policies are required to counter capital misallocation and inequality.” World Bank Group President David Malpass said.
Likewise, the Central American economy is expected to expand 3.9% in 2022 and 3.5% in 2023. This moderate slowdown is recorded by activity in the US, the main source of demand for exports and remittances. For its part, growth in the Caribbean is projected at 6.9% in 2022 and 6.5% in 2023, favored by the recovery of tourism, especially.
Risks include spillover effects to the region from slowing global growth, increased food insecurity, and social unrest. Even a slower-than-expected increase in the continent’s main trading partners would further weaken the regional outlook.
In this regard, Guillermo Sinisterra, Ph.D. in Economics from the University of New York and professor at the Javeriana University, described what has been seen so far as a monetary disorder that becomes a mechanism for stabilizing the economy and its growth. “What is not wanted is for many means of payment to break and for credit to run out due to the lack of opportunities, a fact that was reflected in the price of assets,” the expert mentioned.
According to him, the next stage arrives dressed in inflation, since this measure affects several things such as salary and purchasing power, especially with regard to the family basket, touching those with the lowest incomes.
Reforms are essential for sustainable growth
In addition to the negative effects that the monetary policies of the central banks of the region are going to have, there is the warning from the World Bank regarding the reforms necessary to have sustainable growth. Against a backdrop of slow growth and rising interest rates in the US, financial stress could take hold in some economies in the region, especially if policymakers are unable to credibly commit. in a follow-up study.