By: Staff Writer
January 5, 2024
Inflation pressures are easing says The Economic Commission for Latin America and the Caribbean (ECLAC) in a new report, but also growth has slowed in the region and average only 3.4 percent for the Caribbean and 3.5 percent for Central America.
The Preliminary Overview of the Economies of Latin America and the Caribbean report, issued annually by ECLAC, said that: “Global price pressures have eased, but the major central banks have maintained a tight monetary policy stance while inflation exceeds targets. The leading factors behind falling inflation include the drop in commodity prices since mid-2022 and the easing of supply chain pressures. Average global inflation is projected to fall from 8.7 percent in 2022 to 6.9percent in 2023 and 5.8 percent in 2024, which would still exceed the 3.6 percent averaged in the decade prior to the pandemic (2010–2019).
“The higher short- and long-term interest rates have weakened commercial banks’ balance sheets, one outcome of which has been a decline in lending to the real economy. The rate rises have also driven up the cost of borrowing for the real economy. This has led to an increase in bankruptcies in the corporate sector in the United States and Europe.”
Global debt has also risen to an all-time high, especially in developed economies. This, in turn, has added to the cost of borrowing for developing countries, including those in Latin America and the Caribbean. In fact, debt service in both emerging and developing economies is at its highest level since 2010. More importantly, the high cost of financing has increased the risk of default for several developing countries.
The report also said: “Latin America’s balance of payments current account is expected to record a deficit of 1.4 percent of GDP for 2023, narrowing from the deficit of 2.6 percent of GDP recorded for 2022. This improvement is a result of the goods balance posting a surplus rather than a deficit and smaller deficits for services and income, while the current transfers balance is on course to remain stable. Goods exports are projected to decline in value by 1.0 percent in 2023, owing to price falls that were not offset by rises in export volumes. On the import side, the value of inbound goods is expected to fall more sharply (by 6.0 percent) as a result of drops in both volume and price. In view of these trends, the goods balance is expected to show a surplus of 0.6 percent of GDP for the year.”
It added: “Latin America’s terms of trade are expected to deteriorate by 2.6 percent in 2023, as the price of exports is projected to fall by 5.0 percent and the price of imports is expected by 3.0percent.
“However, in Central America, the impact will be positive, as the countries in the subregion are net importers of such products, meaning that a slight increase in its terms of trade is projected (0.9percent).
“Latin America and the Caribbean remains on a low-growth path, with an estimated year-on-year variation in GDP of 2.2percent in 2023. All the subregions will post lower growth in 2023 than in 2022: South America is set to grow by 1.5percent (3.8percent in 2022); the group comprising Central America and Mexico by 3.5 percent (4.1percent in 2022); and the Caribbean (excluding Guyana) by 3.4 percent (6.4 percent in 2022).”
“In 2024, GDP is projected to grow by an average of 1.9 percent for Latin America and the Caribbean, maintaining the trend of low growth. All the subregions are expected to see lower growth than in 2023: projections are 1.4percent for South America; 2.7percent for the group comprising Central America and Mexico; and 2.6percent for the Caribbean (excluding Guyana).”
These projections are made at a time when countries of the region have limited fiscal and monetary policy space and little impetus from international conditions.
The low growth projected for the region’s economies in 2023 and 2024 is not just a short-term issue, but reflects the fall in the trend growth rate of regional GDP. While the average trend GDP growth for the period 1951–1979 was above 5percent per year, it averaged less than 3percent per year for the period 1980–2009, and has averaged 1.6percent per year for the period 2010-2024.