Latin American economies best prepared to face 2022

The last year was, for a part of Latin America, of a “rebound effect” in the economy.

As 2020 had been exceptionally hard for the global economy due to the Covid-19 pandemic, the growth rates experienced by some countries in 2021 (not the case of Brazil, which saw its GDP retreat in the third quarter and is experiencing a recession scenario technique) can be misleading.

The reason is that the increase in the Gross Domestic Product (GDP, or the sum of everything that is produced in the economy) is measured in relation to the previous year, it may seem, at first sight, that countries in a situation of growth took a spectacular leap forward.

The problem is that the basis for comparison —2020— is very low, so this growth is the so-called “rebound effect”.

With an eye on next year, projections from international organizations give a slightly more “realistic” picture of how Latin American countries are advancing (or not).

The main thermometer of a country’s economy is its GDP, but there are other important indicators to consider.

BBC News Mundo (the BBC’s Spanish service) brings, below, data that take into account economic growth, inflation and the risk classification of the continent’s economies:

Economic growth

Looking exclusively at economic growth, the countries with the highest prospects for next year are Panama, Dominican Republic, El Salvador and Peru, according to the most recent forecasts by the Economic Commission for Latin America (ECLAC).

The following chart shows the list of countries included in ECLAC studies:

Projection of each country’s GDP in 2022

Estimates in Latin America (in%)

Perspectives, however, may vary depending on “unequal advances in vaccination processes [contra o coronavírus] and the ability of countries to reverse the structural problems behind the low growth trajectory they exhibited before the pandemic,” says the organization in its Economic Study of Latin America and the Caribbean, published in October.

‘Well positioned’

Among the larger economies in the region, there are some like Chile and Colombia that are “reasonably well positioned to recover in 2022, even amidst the anxiety [provocada pela] “micron variant”, says to BBC News Mundo Benjamin Gedan, deputy director of the Latin America Program at the Wilson Center, in Washington.

Compared to other countries in the region, Chile is in good shape, says the researcher, because most of its population is fully vaccinated and more than half of Chileans have already received a booster dose.

The country’s central bank projects growth of around 2% next year, although the economy could grow more due to increased demand for its copper and lithium production, says Gedan.

However, doubts remain about how the country will advance during the term of President-elect Gabriel Boric, under a new constitution that should be the subject of a referendum in the second half of next year.

Colombia also has good prospects for 2022, says the researcher, “despite the nervousness about its presidential elections” and the aftermath of the popular protests of 2021.

Among the smaller countries, Panama leads the list of growth projections for next year, according to ECLAC.

“It seems that [o Panamá] is recovering very well,” says Gedan.

The Panamanian economy is likely to benefit from the resurgence of world trade, at a time when the local government has an ambitious infrastructure program.

A potential obstacle, however, is that omicron could affect the important Panamanian tourism industry.

Inflation wave

One of the headaches in parts of the world and Latin America is the escalation of inflation this year.

Even in places where economic growth is returning, the cost of living has risen, meaning that the salary does not reach the end of the month for many people.

Brazil currently has one of the highest inflation rates on the continent: 10.74% in the last 12 months, according to the most recent measurement of the IPCA, made by the IBGE (Brazilian Institute of Geography and Statistics), amid a combination of high in the dollar, in fuel prices and in the cost of food.

The Brazilian inflation rate, already in double digits, is only surpassed on the continent by the exorbitant rates of Cuba (70% inflation, according to recent data from the government itself), Argentina (51%) and Venezuela, which has a chronic problem of hyperinflation .

Most countries have been facing high inflation with interest rate hikes (as did the Brazilian Central Bank, which raised the Selic rate), which in turn tends to inhibit credit for companies and consumers.

Inflation has been driven, in part, by rising food prices, wrote Maximiliano Appendino, economist in the Regional Studies Division of the IMF’s Western Hemisphere Department, International Monetary Fund.

There is a lot of uncertainty about the price of raw materials, international bottlenecks in supply chains and rising shipping costs, and fears that omicron or other variants will continue to delay the end of the pandemic.

On the other hand, Appendino added, the region needs to balance an uncertain inflation outlook with job creation, “still substantially below pre-pandemic levels.”

In Brazil, unemployment reaches levels of 12.1%, according to the IBGE — there are 12.9 million unemployed people.

Risk rating

Rating agencies such as Moody’s, Standard & Poor’s and Fitch assess a country’s solvency — its ability to meet its financial obligations.

It is an indicator that is sometimes disputed, but it serves to analyze the health of an economy.

On a descending scale, the best rating is Aaa and the lowest is C.

The list below ranks Latin American countries from the highest to the worst performers, according to Moody’s.

low credit risk

Moderate credit risk

• Mexico (Baa1)
• Peru (Baa1)
• Colombia (Baa2)
• Panama (Baa2)
• Uruguay (Baa2)

questionable credit quality

• Paraguay (Ba1)
• Guatemala (Ba1)
• Brazil (Ba2)
• Rep. Dom. (Ba3)
• Honduras (B1)
• Costa Rica (B2)
• Bolivia (B2)
• Nicaragua (B3)
• El Salvador (Caa1)
• Ecuador (Caa3)
• Argentina (Ca)
• Cuba (Ca)
• Venezuela (C)

Source: Moody’s (December 2021)

a difficult 2022

Overall, “Latin America’s growth prospects for 2022 are bleak,” comments Gedan.

Not only because of the economic effects left by Covid-19, but also because the region was already in a bad state when it entered the pandemic.

Next year comes “a worrying debt hangover and rising inflation,” argues the researcher.

At the political level, cuts in public spending could trigger new episodes of social dissatisfaction, as occurred, for example, in Colombia in April 2021 in response to proposals for economic reforms, argues Gedan. In that sense, political uncertainty in Latin America’s main economies “has limited the investments the region needs to recover,” he says.

This uncertainty comes from new governments, such as Pedro Castillo in Peru and Gabriel Boric in Chile, and next year’s presidential elections in Brazil and Colombia.