The economy of the countries of Latin America grew above expectations in 2023, already surpassing the ravages left by the covid-19 pandemic, as revealed in a report published this 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 bank’s own projections.
«After 2 turbulent years, we landed softly and are now ready to take off»explained the IDB’s chief economist, Eric Parrado, in an interview with EFE.
The report detailed that the fiscal policies that the countries in the region took to deal with the effects of the pandemic, together with a 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 confront inflation, which in its opinion also paved the way for last year’s data to exceed expectations.
«The central banks of the region reacted in a timely manner, much earlier than developed countries and also with much higher interest rates»Parrado assessed and added that in the response to the pandemic and the effects it left on the economies “the banking systems of Latin America were part of the solution, not part of the problem as they had been in the past.”
The increases in interest rates caused the average annual inflation to fall to 3.8% in December of last year and, in turn, the primary fiscal deficits were balanced by reducing the spending generated by covid-19, as explained by the report.
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 raw material prices, with growth rates of around 3%.
Effects of the El Niño phenomenon
The report also highlighted the impact of the meteorological phenomenon of The boy In some countries of the region, specifically those of the Southern Coneas Argentina y Uruguay.
This climatic event, which will last until April of 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 could cause a 3% increase in debt as a percentage of GDP in the countries of that region in three years, so the bank recommends that governments allocate public resources to “adaptation and “mitigation” to climate change, to alleviate these adverse effects on the economy.
Uncertainty
The IDB estimates for this year contemplate economic growth slowing to 1.6% in the region, and then rebounding to 2% in 2025, however, it highlights that there are uncertainty factors that could affect the predictions, including them the measures taken by the Federal Reserve de EE.UU. against inflation.
The IDB’s chief economist pointed out that the multilateral expects Washington to continue lowering interest rates as it has been doing, but recommended the countries in the region not to make decisions about their own rates until they know what the United States will do.
The report also warned that the escalation of conflicts in the Middle East could “increase the volatility of raw material prices”, generating a factor of uncertainty in the regional economy.
The IDB macroeconomic report was presented after the closing of the organization’s annual assembly in Punta Cana (Dominican Republic), where the bank approved a series of institutional reforms that seek to attract more private capital to the bank.
As recommendations to boost growth in the region, the IDB suggests that countries improve productivity, as well as “encourage formalization” and the growth of companies and take advantage of changes in value chains at a global level to “attract flows of foreign direct investment. EFE (I)
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