Economic growth in Latin America and the Caribbean slowed to touch 2.2% in 2023, about half the 3.9% growth rate recorded in 2022, the World Bank reported on Tuesday. The multilateral, which has just published its flagship report on global economic prospects, estimates that Latin America will grow 2.3% this year, an improvement of 0.3% compared to its estimate announced in October. Its forecast for 2025, however, was reduced by 0.1%, going from 2.5% to 2.4%. High inflation, restrictive financial conditions, weak trade and adverse weather events slowed investment and production growth in 2023, the agency said.
“Regional growth in 2023 was 0.7% higher than previous projections, largely due to upward revisions in growth forecasts for the two largest economies: Brazil and Mexico,” the 230-page report says. “The delayed effects of the past monetary adjustment will continue to weigh on short-term growth, but with increasingly less power,” indicate the authors of the report, referring to the rise in interest rates that the different central banks in the region have set. underway to contain inflation.
“The upward revision of the growth forecast for Latin America and the Caribbean in 2024 reflects stronger external demand due to better growth expectations in the United States, as well as higher than expected government spending. “China's slowing growth is expected to have limited effects on commodity prices and is therefore not expected to substantially affect the region,” the report says. “More generally, changes in commodity prices over the forecast period are expected to be modest and will not constitute a major driver of regional growth,” the specialists added.
The Bank predicts that inflation in the region will continue to slow and converge towards national objectives by the end of 2024, so central banks are expected to reduce their rates. This could pave the way for a rebound in investment in 2024 and 2025. However, the Bank warns that fiscal policy, that is, government spending, could negatively impact growth.
In 2023, Brazil obtained better than expected results in agricultural production, private consumption and exports in the first three quarters of the year.” Mexico, for its part, surprised with stronger private consumption and investment than expected. “In contrast, growth was weaker than expected in other large LAC economies, including Argentina, Colombia and Peru, and recent business surveys point to weakening confidence and manufacturing activity,” Bank economists wrote.
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