The Strategist

Analysts: Latin America will slow down GDP growth

09/08/2023 - 03:33

According to an estimate by researchers in a Focus Economics regional analysis, the average economic growth rate for Latin American countries will be just 1.6% this year, which is half the pace expected in 2022.

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The economy of Latin America will grow at the slowest rates among all other developing nations. Focus Economics poll show that ineffective institutions, political unpredictability, extreme inequality, corruption, poor educational standards, and underdeveloped high value-added businesses will continue to be the key barriers to faster growth.

The growth rate this year will drop from 2.1% to 1.6%, which is a half of last year figure. The slowdown is attributed to the exhaustion of the effects of the activity's recovery against the backdrop of the removal of covid restrictions, the decline in global prices for some types of exported raw materials, and drought in Argentina and Uruguay.

The downturn in China, a significant trade partner and investor for the majority of Latin American nations, will have an impact on business activity in the area as well. Increasing pressure on capital outflows is a result of rising interest rates in the US. At the same time, growing interest in "reshoring" — relocating production to neighboring or friendly nations — including by US businesses, may assist Mexican economic growth.

Focus Economics projects 2% long-term growth rates, which is insufficient to close the gap with industrialized nations. However, only Argentina's GDP will face a recession; the consensus forecast pegs it at 2.5%. GDP is anticipated to rise by 2% in Brazil and 2.4% in Mexico.

Nearly all of the nations in the region will have lower inflation this year, largely as a result of lower global energy costs (although oil prices are still rising; the price of a barrel of Brent oil has already surpassed $90), the normalization of supply chains, and weaker domestic demand. Faster price growth is anticipated in Venezuela, Colombia, Haiti, and Argentina.