Who will grow the most in the Americas?
Although the region faces significant challenges, the IMF highlighted that Latin America has been "very resilient" to the challenges of recent years. In terms of employment, higher levels than those registered before the pandemic are already being observed.
The report also provides details on the forecasts for the main economies in the region. Mexico, for example, is expected to grow by 1.8% in 2023, after recording a 3.1% increase in its GDP in 2022. The figure will moderate even further in 2024, to 1.6%, while inflation will decrease from 6.3% this year to 3.9% next year.
Chile, on the other hand, is the only Latin American country that will enter into a recession, according to IMF figures, which project a 1% loss of GDP this year. The country will recover in 2024 and grow by 1.9%, while inflation will be at 4%, after having been reduced to 7.9% this year.
Colombia will experience very moderate growth of 1% in 2023 and 1.9% in 2024. Inflation will grow this year, to 10.9%, but will moderate to 5.2% next year.
Brazil, one of the first countries to start raising interest rates to curb inflation, will see its GDP grow by only 0.9% this year, while inflation will decrease to 5%. By 2024, the country will grow by 1.5% and maintain inflation at 4.8%.
Regarding Central America and the Caribbean, the IMF forecasts growth of 3.8% in both years, with inflation gradually decreasing to 5.5% this year and 4% next year in Central America, while in the Caribbean, GDP is expected to rise by 9.9% this year with inflation at 13.5%, and an increase of 14.1% in 2024, with more moderate inflation.
In March, Brazil and Mexico recorded a monthly inflation rate of 0.7% and 0.2%, respectively, with an annual inflation rate of 4.6% and 6.8%. Ecuador, the country that adopted dollarization two decades ago, showed the lowest inflation rate of 0.06% in March, and the IMF projects it will be 2.5% by December. The problem of the inflation rate is the result of a policy mistake, and governments need to take immediate measures to control it. They need to reduce public spending, attract foreign investment, and develop a solid economy with a low budget deficit to get the economy back on track.
Who is worse off with inflation?
Especially in Argentina and Venezuela, where inflation is expected to exceed 98% and 400%, respectively, by 2023. This is partly due to the decrease in the boost provided by the increase in commodity prices in 2022, which will negatively affect the region's growth this year.
See the full report on inflation in Argentina, here.
Bankers much more cautious than the IMF
Central bankers in Latin America are intensifying their fight against inflation, despite criticism from some political leaders. After taking the global lead in raising interest rates following the pandemic, policymakers have warned investors that the fight against inflation will take longer than expected. During the IMF spring meetings, officials from the central banks of Brazil and Chile highlighted that they need more evidence that price pressures are sticking before easing their policies.
The president of Peru's central bank, Julio Velarde, was clear in pointing out that cutting rates only to raise them two or three months later is the worst scenario for a central banker. During the meetings in Washington, the region's economic leaders cooled hopes of an imminent end to tight monetary policy, and their message to developed economies was that bringing inflation back to its targets will be a long and complicated battle. As a tip, investors are recommended to closely monitor the evolution of monetary policies and be prepared for a prolonged period of fighting inflation.