The gross domestic product (GDP) of the Latin America and Caribbean region will grow by 1.2% in 2023, a tenth less than forecast last December, as estimated by the Economic Commission for Latin America and the Caribbean.
This downward revision is due to the complex external scenario that the region’s economies are facing this year, characterized by low growth in economic activity and world trade and high monetary interest rates.
In addition, the financial turmoil observed in early March has increased uncertainty and volatility in financial markets. As such, the 2023 growth forecast for the region is subject to downside risks given the possibility that the turmoil in the global banking system could recur and intensify.
In addition to financial risks, there remains uncertainty about the global and regional impact that the prolongation of the war in Ukraine and increasing geopolitical fragmentation could have on economic growth, commodity prices and world trade.
INFLATIONARY AND MONETARY EFFECTS WILL BE STRONG
As in the rest of the world, inflation in the region is on a downward trend. Although ECLAC expects that the process of interest rate hikes in various countries in the region may be nearing completion, the impact of the tightening policies on private consumption and investment will be felt more this year due to delays in monetary policy.
In terms of fiscal policy, Latin America faces a scenario with limited room for maneuver due to the high national debt.
“Against the backdrop of high demand for public spending, measures will be needed to strengthen fiscal sustainability and expand fiscal space by strengthening the collection and redistribution capacity of tax policies,” the agency warns.
BEST PERFORMANCE IN THE CARIBBEAN AND CENTRAL AMERICA
In detail, South America will show the lowest growth in the region, remaining at a rate of 0.6% at the end of the year, compared to the 1% estimated by ECLAC in its last forecast.
For its part, the agency has upgraded the growth prospects for Central America and the Caribbean, which were forecast to 3.1% and 3.5%, respectively, from 3% and 3.1% in December.
The upward revision for the economies of this region is a consequence of improving growth expectations of the United States, the main trading partner and the main source of remittances from its countries, which would benefit both the external sector and private consumption. Lower energy prices expected this year compared to 2022 would also work in their favor as some of them are net importers of energy.