Economic growth in Latin America and the Caribbean slowed to 2.2% in 2023, about half the 3.9% growth rate recorded in 2022, the World Bank reported on Tuesday. The multilateral firm, which just released its flagship report on the global economic outlook, estimates that Latin America will grow 2.3% this year, a 0.3% improvement from its estimate published in October. However, its forecast for 2025 was cut by 0.1% from 2.5% to 2.4%. High inflation, tight financial conditions, weak trade and adverse weather events slowed investment and output growth in 2023, the agency said.
“Regional growth in 2023 was 0.7% higher than previous forecasts, largely due to upward revisions to growth forecasts for the two largest economies, Brazil and Mexico,” the 230-page report said. “The lagged impact of past currency adjustments will continue to weigh on near-term growth, but with less and less force,” the report’s authors point out, referring to the interest rate hikes set by the various central banks in the region. underway to curb inflation.
“The upward revision to the 2024 growth forecast for Latin America and the Caribbean reflects stronger external demand due to better growth expectations in the United States as well as higher than expected government spending. “China's slowing growth is expected to have limited impact on commodity prices and is therefore not expected to have a significant impact on the region,” the report said. “In general, the changes in raw material prices in the forecast period are likely to be moderate and not represent a significant driver for regional growth,” the experts added.
The bank forecasts that inflation in the region will continue to slow and move closer to national targets by the end of 2024, so central banks are expected to cut their interest rates. This could pave the way for a recovery in investment in 2024 and 2025. However, the bank warns that fiscal policy, i.e. government spending, could have a negative impact on growth.
In 2023, Brazil achieved better than expected results in agricultural production, private consumption and exports in the first three quarters of the year.” Mexico, on the other hand, surprised with stronger private consumption and investment than expected. “In contrast, growth in other major LAC economies, including Argentina, Colombia and Peru, has been weaker than expected, and recent business surveys suggest weakening confidence and manufacturing activity,” economists at the bank wrote.
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