Economy loses steam and faces challenges in 2022 in Latin America, says IMF

After a year of relative recovery in Latin America, 2022 holds challenges for the region, according to the IMF (International Monetary Fund). Rising prices, slowing down of economic partners and elections with high chances of social unrest are some of the reasons listed.

Many of the issues are linked to the health crisis and the highly transmissible omicron variant of the coronavirus.

“Uncertainty about the evolution of the pandemic more broadly continues to cast a shadow over the global recovery and in Latin America and the Caribbean,” the fund said on Monday (31) in a text signed by some of its directors, among them the president of the Central Bank between 2016 and 2019 Ilan Goldfajn.

The text points out that public managers should start thinking about policies that guarantee the sustainability of public finances and increase the region’s growth.

The 2022 growth projection for Latin America made in October, of 3%, was readjusted downwards and reached 2.4%. The region is estimated to have grown 6.8% last year, as countries recovered from their 6.9% drop in 2020.

While the slowdown is expected as economies return to pre-pandemic pace again, the figure reflects the adversity the region must face, according to the IMF.

Last year was marked by high inflation in the region, followed by monetary tightening by the country’s central banks. In the region’s main economies, inflation reached 8.3%.

In Brazil, the index​ exceeded the Central Bank’s target and hit double digits: 10.06% in the year, the highest increase since 2015.

Climatic adversities, such as frost and drought, interfered with the price of food and energy, which are highly dependent on hydroelectric plants. The rise in commodity prices and the rise in the dollar, which ended 2021 at R$5.58, also encouraged exports and inflated foodstuffs in the domestic market.

In response, the region’s central banks raised interest rates to slow the economy and hold prices back. In some of the major economies, the increase was between 1.25 and 7.25 percentage points, the latter being the Brazilian level.

“If rising inflation threatens to derail index expectations, central banks will have to raise interest rates further to signal continued commitment to the targets and avoid persistent price increases,” the IMF text said.

The United States, an important economic partner of Latin America, is dealing with an unprecedented inflation in 40 years and should follow the same path. Last Saturday, Goldman Sachs calculated five interest rate hikes by the US Central Bank in 2022. Currently, the country maintains a stimulus policy with a zero rate.

China, whose growth boosted Brazil’s exports in 2021, is imposing restrictive measures on circulation while experiencing a new wave of coronavirus infections.