The OECD assures that better financial conditions will boost some

The OECD assures that better financial conditions will boost some Latin American economies

After surprising analysts in 2023, the global economy will experience a slowdown this year, which will be reflected in some Latin American economies, the Organization for Economic Co-operation and Development (OECD) said in its latest report. In the region, Brazil has already started cutting interest rates and Mexico is expected to begin a decline soon, which could boost growth in the region's two largest economies. The OECD expects growth of 1.8% for Brazil and 2.5% for Mexico this year. For both, this would represent a slowdown compared to 2023 growth of 3.1%.

“Easier global financial conditions and the expected start of policy rate cuts in advanced economies improve monetary policy space in emerging markets by providing more flexibility in implementing policy rate cuts,” the report said. 20-page report published on Monday. “However, differences in underlying economic developments are reflected in increasingly different policy stances across the largest economies,” the international organization adds.

The OECD assures that better financial conditions will boost some

“Official interest rates are also being cut in some Latin American countries, including Brazil, which was among the first to significantly tighten policies in 2021 and where inflation has now fallen sharply towards the target.” In other countries such as India, Indonesia, Mexico and South Africa have not yet begun easing monetary policy and inflation remains contained but has not yet fallen significantly. “There is scope for gradual policy easing in most of these economies over the next two years as disinflation continues,” economists at the organization wrote.

The OECD assumes that the decline in Argentina's economy will be more severe than expected. According to the organization, this amount will fall by -2.3% this year, -1% more than estimated in November due to the austerity policies proposed by the new government of President Javier Milei. “High inflation and significant fiscal tightening are expected to lead to a decline in output in Argentina in 2024 before growth recovers in 2025 as reforms begin to take hold,” the report said. The OECD expects Argentina's GDP to grow by 2.6% in 2025.

Aggregate consumer price inflation will be higher on average across the 20 largest economies in 2024 than in 2023, but this will be distorted by high inflation in Argentina and Turkey, the OECD warned. In both countries, this accelerated at the end of 2023, implying a strong spillover effect for average annual inflation this year. The OECD expects average inflation in G20 countries to be 6.6% this year and 3.8% in 2025.

“The pace of official interest rate cuts should remain cautious to ensure that inflation expectations remain well anchored and to avoid a rapid narrowing of interest rate differentials with advanced economies, which could increase the risk of currency outflows or currency devaluations,” the organization concludes.

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