The IMF also mentions that central banks should not reduce their determination to lower inflation and that fiscal policy “should emphasize social spending to support the poor while reducing public debt.”
The International Monetary Fund (IMF) warned this Wednesday that the riots and political paralysis that are taking place in different regions of Latin America might have consequences for the continent’s economic activity and growth.
“The continued possibility of unrest and political paralysis has the potential to erode confidence and weigh on economic activity”the Fund pointed out in an article written by analysts Gustavo Adler, Nigel Chalk and Anna Ivanova.
The Fund also reiterated that Countries like Chile will not grow this year: it will decrease 1.5% and show a recovery of 1.9% in 2024.
Social discontent and decreased trust
Although it does not mention any of the political crises that have been experienced in recent weeks in countries such as Brazil or Peru, the IMF explains that “growing social discontent and the decline in confidence in public institutions has been an important trend in the region for some time.”
“Social tensions were certainly exacerbated during the pandemic. The poorest people, particularly those who work in face-to-face services, were the most affected by the economic consequences. While government support helped, many were unable to fully insulate themselves from the negative impact, as evidenced by the notable increase in poverty,” the article added.
IMF analysts explain that, despite the fact that in 2022 the region’s economy expanded by almost 3.9%, inflation fell and employment recovered strongly, “2023 is likely to be a challenging year for the region.”
growth forecasts
This week the agency published its latest global growth forecasts and noted that Latin America and the Caribbean will grow 1.8%, below the global average of 2.9%. Also in 2024, when it will grow 2.1%, compared to the 3.1% world average.
All of this is due, among other reasons, to the higher interest rates, falling commodity prices, slowing job creation, weakening confidence of consumers and the slower growth of its trading partners, particularly the United States and the euro area.
Despite the “obvious difficulties,” policies “must focus on ensuring economic stability, stimulating growth and job creation, supporting entrepreneurship, and addressing the pressing social needs facing many people in the region.”
“This will help mitigate social discontent and restore confidence in public institutions,” the article states.
The text is accompanied by detailed forecasts for the different countries of the region; Thus, Mexico will grow 1.7% this 2023 and 1.6% next year, while Brazil will grow 1.2% this year and 1.5% in 2024.
For Argentina, growth of 2% is estimated in 2023, a figure similar to that of 2024; Chile, on the other hand, will decrease by 1.5% in 2023 and will grow by 1.9% a year later. Colombia 1.1% and 2.1%; Ecuador 3% and 2.8%; Uruguay 3.6% and 2.7%; Peru 2.5% and 3.2%; Costa Rica 2.9% and 3% and Panama 4% both years.
Inflation
Regarding inflation, following registering 7.9% in 2022 (excluding the volatile Argentina and Venezuela), in 2023 the IMF it is estimated that it will stand at 5.2% on average in the region and in 2024 at 3.4%.
The IMF also mentions that central banks must not reduce their determination to lower inflation and that fiscal policy “should emphasize social spending to support the poor while reducing public debt.”
“Achieving these targets will require revenue mobilization in a progressive, growth-friendly and equitable manner. Trust in government will continue to be undermined as long as the rich do not pay their fair share in taxes.
