Spotlight: The economic outlook for Latin America

The World Bank adjusted downward 2023 growth projections for Latin America and the Caribbean from 1.9% to 1.3%, compared to last year’s 3.6%, with especially negative effects on trade and political risk.

"Foreign trade starts to feel this economic slowdown, which is not just in Latin America, but [globally]. Not even China, which often in the past helped compensate poor global economic performance, is showing robust performance this year," José Augusto de Castro, president of Brazilian export association AEB, told BNamericas.

For 2024, the World Bank projects 2.4% regional growth.

After exceeding the global economic expansion average in 2022, Latin America will likely underperform. The global economy grew at a projected rate of 2.9% in 2022, and is expected to expand 1.7% and 2.7% this year and the next.

"Decelerating global demand will dampen the external drivers of near-term growth in the region, while domestic demand will be curbed by monetary policy tightening and persistent policy uncertainty in some countries," the World Bank said in a report.

"The main downside risks to the outlook are external: tightening global financial conditions could precipitate capital outflows and currency depreciations, and the global economy could slow more than predicted, leading to sharp falls in commodity export prices," it added.

A slowdown increases risks of social unrest.

"Without a doubt, this slowdown has increased discontent among the population. We have political instability in several countries and although these instabilities are not necessarily directly linked to economic issues, it is clear that this economic slowdown is a stimulus for more people to join disruptive movements," Mário Sérgio Lima, a senior political analyst at Medley Global Advisors, told BNamericas.

BRAZIL

Expected to expand 0.8% in 2023 and 2% in 2024, compared to projected growth of 3% last year.

"Investment is expected to contract sharply in 2023 following a nearly 12-percentage point increase in the central bank policy interest rate since early 2021. Uncertainty regarding the fiscal policy outlook poses a further headwind to business confidence and investment," said the World Bank.

MEXICO

GDP in the region’s second largest economy is likely to register 0.9% in 2023 and 2.3% in 2024, compared with 2.6% projected for 2022.

"Domestic demand for services should continue to gradually recover in 2023, but a sharply weaker US outlook is likely to curtail growth of exports and inward remittances," according to the World Bank.

ARGENTINA

GDP is forecast to reach 2% in 2023 and in 2024, after stronger than expected projected growth of 5.2% last year.

"The deceleration in growth reflects external headwinds and constraints on domestic activity related to the high inflation environment. Weakening foreign demand is likely to weigh on export growth, while capital, import, and price controls continue to complicate the business environment," said the institution.

COLOMBIA

Growth of 1.3% is expected for this year, compared to projected 8% in 2022. In 2024, GDP is projected to reach 2.8%.

"The economy is expected to slow as the surge in activity that accompanied reopening from pandemic restrictions abates, and as monetary policy remains tight amid high inflation. Investment growth is also forecast to decelerate," said the World Bank.

CHILE

Chile is one of two countries – the other being Haiti – which will see a contraction in 2023.

After projected expansion of 2.1% in 2022, the economy will contract 0.9% in 2023, before rebounding to 2.3% in 2024.

"Reduced real incomes due to high inflation, twinned with a softening labor market, are expected to erode near-term consumption. Despite weak activity, monetary policy is likely to remain tight early in the year," said the World Bank.

"Considerable policy uncertainty remains, linked to the constitutional reform process and ongoing pension and tax reform efforts," it added.