Business & Economy

Latin America’s economy exceeds expectations, stabilizes after pandemic

Punta Cana (Dominican Republic), Mar 11 (EFE).- The economy of the Latin American region grew above expectations in 2023 and has overcome the ravages caused by the Covid-19 pandemic, according to a report published Monday by the Inter-American Development Bank (IDB).

The region experienced economic growth of 2.1% compared to the previous year, a figure that doubled the projections made by the bank itself.

“After two turbulent years, we landed softly and are now ready to take off,” explained IDB Chief Economist Eric Parrado in an interview with EFE.

The report explained that the fiscal policies adopted by the region’s countries to deal with the effects of the pandemic, together with the generalized growth of the global economy, gave the necessary push for the recovery that is being experienced.

In addition, the IDB highlighted the timely reaction of the region’s central banks to deal with inflation, which in its opinion also paved the way for last year’s data to exceed expectations.

“The region’s central banks reacted in a timely manner, much earlier than developed countries and also with much higher interest rates,” said Parrado, adding that in the response to the pandemic and the effects it left on economies, “Latin America’s banking systems were part of the solution, not part of the problem as they had been in the past.”

Interest rate hikes brought average annual inflation down to 3.8% in December and, in turn, primary fiscal deficits were balanced as Covid-19 generated spending was reduced, the report explains.

The regional growth recorded last year is also largely due to the expansion of the economies of countries such as Mexico, driven by the increase in the prices of raw materials, with growth rates of around 3%.

Ravages of El Niño in Latin America

The report also highlighted the impact of the El Niño weather phenomenon in some countries of the region, particularly those of the Southern Cone, such as Argentina and Uruguay.

This climatic event, which will last until April this year according to estimates by the World Meteorological Organization (WMO), caused droughts in the southern countries of the continent, which affected the production of raw materials.

Therefore, the report estimates that El Niño may cause a 3% increase in debt as a percentage of GDP in the countries of that region in three years, so the bank recommends governments allocate public resources to adapt to and mitigate climate change, to alleviate the adverse effects on the economy.

De-acceleration in 2024 and uncertainty

The IDB estimates for this year forecasts that economic growth will slow down to 1.6% in the region, and then rebound to 2% in 2025. The bank says there are uncertainty factors that could affect the predictions, among them the measures taken by the U.S. Federal Reserve to tackle inflation.

The IDB chief economist pointed out that the multilateral expects Washington to continue lowering interest rates as it has been doing, but recommended the region’s countries wait before making decisions on their own rates until the United States acts.

The report also warned that the worsening of conflicts in the Middle East could “increase the volatility of raw material prices,” creating a factor of uncertainty in the regional economy.

The IDB’s macroeconomic report was presented after the organization’s annual meeting ended in Punta Cana (Dominican Republic), where the bank approved a series of institutional reforms aimed at attracting more private capital to the bank.

As recommendations to boost growth in the region, the IDB suggests countries improve productivity, as well as “promote the formalization” and growth of enterprises and take advantage of changes in global value chains to “attract foreign direct investment flows.” EFE

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