Latin America to growing below the global pace. Again

Hampered by contractions in Argentina and Chile and a weaker-than-expected performance in Colombia and Peru, Latin America will grow below the world average this year, according to OECD latest economic outlook update.

Not only that, but the region — which in the entity’s study encompasses the four countries mentioned, plus Mexico, Brazil, and Costa Rica — would see the most significant economic slowdown in the world in 2023.

OECD expects Latin America’s seven largest economies to grow 1.5 percent this year, and slightly recover to 1.7 percent in 2024. Globally, the broad picture painted for the next two years is one of a “moderate slowdown,” with average growth of 2.9 percent and 2.7 percent, followed by eventual normalization, that is, with growth returning to near-trend rates and inflation converging back to central bank targets by 2025.

For the entity, inflation will still be one of the region’s biggest obstacles to macroeconomic stability, reaching an average of 6.8 percent at the end of this year. Latin American countries are likely to face a more extended period of high interest rates, their primary weapon against persistent inflation, dragging domestic consumption and investments down.

As already highlighted in reports from other organizations, such as the World Bank and the United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC), the region must continue to ease monetary policy where possible while also establishing a new fiscal agreement that sets the foundation for a more sustainable public finance framework. Accomplishing such a task is far from straightforward, given that, as the OECD recalled, the region has a series of social demands to meet. 

In the case of Brazil, new projections from the Bimonthly Income and Expense Assessment Report by the Planning Ministry point to a budget shortfall of BRL 177.4 billion or 1.7 percent of GDP this year. Officially, the gap is still within the 2 percent cap established in this year’s Budget Guidelines Law (LDO). 

Still, it is much higher than the 1 percent target that Finance Minister Fernando Haddad had committed to at the beginning of this year. With difficulties in passing legislative changes that create new tax income sources and revenue falling month after month due to the economic slowdown, Mr. Haddad’s goal of zero deficit for 2024 also seems practically impossible to achieve.

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