After surprising analysts in 2023, the world economy will see a slowdown this year, this will be reflected in some Latin American economies, said the Organization for Economic Cooperation and Development (OECD) in its most recent report. In the region, Brazil has begun cutting interest rates and Mexico is expected to begin its decline soon, which could boost growth in the region's two largest economies. The OECD expects Brazil to grow 1.8% this year and Mexico 2.5%. For both, this would represent a slowdown compared to the 3.1% growth seen in 2023.
“Easier global financial conditions and the expected start of policy rate reductions in advanced economies improve monetary policy space in emerging market economies by providing more flexibility to implement policy rate reductions,” the report says. 20-page report released Monday. “However, differences in underlying economic developments are being reflected in an increasingly divergent political stance in the largest economies,” adds the international organization.
“Official interest rates are also being reduced in some Latin American countries, including Brazil, which were among the first to significantly tighten their policies in 2021 and where inflation has now fallen sharply towards the target. In others, such as India, Indonesia, Mexico and South Africa, policy easing has not yet begun, and inflation remains contained but has not yet decreased substantially. “There is room for some gradual policy easing over the next two years in most of these economies, as long as disinflation continues,” economists from the organization wrote.
The OECD expects that the decline in the economy in Argentina will be worse than expected. This will contract -2.3% this year, the organization said, -1% more than estimated in November derived from the austerity policies proposed by the new Government of President Javier Milei. “High inflation and considerable fiscal tightening are projected to result in a drop in output in Argentina in 2024 before growth recovers in 2025, when reforms begin to take effect,” the report says. The OECD expects Argentine GDP to grow 2.6% in 2025.
Aggregate consumer price inflation on average across the 20 largest economies will be higher in 2024 than in 2023, but this is distorted by high inflation in Argentina and Turkey, the OECD warned. In both countries, this accelerated at the end of 2023, which implies a strong carryover effect for average annual inflation this year. The OECD expects average inflation in G20 countries to be 6.6% this year and 3.8% in 2025.
“The pace of official interest rate reductions should remain cautious to ensure that inflation expectations remain well anchored and to avoid a rapid narrowing of interest rate differentials with advanced economies that could increase the risk of currency outflows.” capital or currency depreciation,” concludes the organization.
Follow all the information Economy and Business in Facebook and xor in our weekly newsletter
#OECD #assures #financial #conditions #boost #Latin #American #economies
