IMF ups Latin America's economic growth outlook for 2023

The IMF has made an upward revision of its estimates for the economic performance of Latin America and the Caribbean in 2023, thanks to improved forecasts for the region's two biggest economies, Brazil and Mexico.

"There is a temporary improvement in the region's economic prospects, including for Brazil, but domestic and international factors will tend to slow this perception of recovery over time," Luciano Rostagno, chief Latin America strategist at Banco Mizuho do Brasil, told BNamericas.

According to Rostagno, the process of reopening the Chinese economy after the end of the zero-COVID policy in the Asian nation will favor Latin American exports, while an expansionary fiscal policy adopted by the Brazilian government will also probably fuel GDP growth in the region's largest economy. 

IMF sees Latin American GDP growing 1.8% this year, compared with the 1.7% projected in October. Despite the slight increase, growth in the region's economy would still be significantly lower than the expected 3.9% expansion in 2022.

"The forecast revision reflects upgrades of 0.2 percentage point for Brazil and 0.5 percentage point for Mexico due to unexpected domestic demand resilience, higher-than-expected growth in major trading partner economies, and in Brazil, greater-than-expected fiscal support," the IMF said in its quarterly World Economic Outlook report.

Brazil's economy is now forecast to grow 1.2% this year, compared with 3.1% in 2022, while Mexico is predicted to see an expansion of 1.7% this year, versus 3.1% in 2022.

For 2024, IMF sees the region as a whole growing slightly faster, with GDP increasing by 2.1%, although it cut its previous forecast.

"Growth in the region is projected to rise to 2.1 percent in 2024, although with a downward revision of 0.3 percentage point, reflecting tighter financial conditions, lower prices of exported commodities, and downward revisions to trading partner growth," it said.

The Brazilian economy is forecast to grow 1.5% in 2024, versus the 1.9% projected previously. 

"The intention of Brazil's government to increase spending will tend to generate persistent inflationary pressure, which will force the central bank to keep the interest rate at a high level for a longer period of time," said Rostagno.

For Mexico, the IMF sees GDP rising 1.6% in 2024, compared with the 1.8% forecast previously. 

GLOBAL ECONOMY

According to the IMF, global growth will decline from an estimated 3.4% in 2022 to 2.9% in 2023, before rising to 3.1% in 2024.

The forecast for 2023 is 0.2 percentage points higher than predicted in the IMF's October report, but below the historical average of 3.8% seen in 2000 and 2019.

"The rise in central bank rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity. The rapid spread of COVID-19 in China dampened growth in 2022, but the recent reopening has paved the way for a faster-than-expected recovery," it said.

Global inflation is expected to dip from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024, still well above pre-pandemic levels of about 3.5% between 2017 and 2019.