Latin America will register a sharp slowdown in 2023 compared to 2022, despite an expected improvement in the economy in the second half of the year that is already beginning to take shape, according to Moody’s.
In fact, growth from a year earlier will be higher than forecast so far, according to the International Monetary Fund (IMF).
The IMF revised upwards a few days ago the expectations of expansion in the area to 1.9% (three tenths more than expected in April) due to the push detected in the two large regional markets, Brazil and Mexico.
For 2024, the IMF maintained its forecast of limited regional progress of 2.2%. In other words, the region will progress two years below what was achieved in 2021 and 2022.
The multilateral entity now forecasts that Brazil will grow 2.1%, 1.2 points more than expected in its previous report, driven by the agricultural sector, and that in 2024 it will expand 1.2%, three tenths below what was calculated.
For Mexico, the Fund expects growth this year of 2.6%, eight tenths above estimates, while in 2024 it will record an expansion of 1.5%, one tenth less.
Mexico is strengthened by the services sector, its ties with an improving US (of which it is the main trading partner), and the momentum created by nearshoring. Argentina will suffer a recession of 2.5% in 2023, when a minimum advance of 0.2% was expected, and will grow 2.8% in 2024, much more than the 0.8% estimated in April.
Overall, Latin America will progress both this year and next year well below the rates reached in 2021, when it rebounded by 7% after the recession caused by the pandemic, and in 2022, when it achieved an expansion of 3.9%.
The IMF does not include data from the rest of the countries in the area, but it is clear that both Brazil and Mexico will make more progress this year than the US (1.8%) and the rest of the G-7 countries (United Kingdom, Canada, Germany, Japan, Italy, and France) and the euro area (0.9%). and that Mexico will do more than Spain (2.5%). China will advance at a pace of 5.2%.
Moody’s warned of political risks that may weigh on the growth of Latin America. Specifically, it emphasizes in a report that socio-political risks have become increasingly prominent in Latin America, with social discontent over the high cost of living, a lack of access to social services, and growing political tensions and instability.
In Argentina, the main risk indicators are financial volatility and changes in economic course.
In Brazil, policy changes “could lead to government intervention in state-owned enterprises and government banks.”
In Mexico, Moody’s warns of the shift in energy policy, which has slowed private investment in the sector, particularly in renewables.
In Colombia, “the reform agenda intensifies the risk of policy changes, which affects investor confidence.”
In Peru, the resurgence of social protests creates governance risks.
