Global, Latin American Economies Weaken

Multiple shocks are weakening global growth, while inflation remains high. Despite efforts to shield the most vulnerable groups, the poorest still bear a disproportionate share of the burden of high food and energy prices. Risks to the outlook are on the downside, with the potential for several interrelated adverse shocks. A more significant global slowdown in 2023 will drag down Latin America’s economic growth next year, given the region’s trade links with the US. 

Under these circumstances, the Organization for Economic Co-operation and Development (OECD) lowered its growth outlooks for some Latin American countries, including Brazil, Mexico and Argentina. “As a result of the weakening global demand, Latin American exports will lose steam, thus taking a toll on the main regional exporters as in the case of Brazil, Mexico, Argentina, Chile and Colombia. Beyond the lower global demand, the region will still face the monetary brake imposed by central banks to bring inflation down and close to the target’s upper range,” Alfredo Coutiño, Director for Latin America, Moody’s Analytics, told The Dialogue. 

Multiple shocks are weakening global growth while inflation remains elevated. International fragmentation pressures are also darkening the outlook. Moreover, heightened inflation and debt levels are prompting policymakers to tighten monetary and fiscal policy, further weighing on growth. While most economies continue to grow, the pace of growth has slowed, and some economies have fallen back into recession. Risks to the outlook are firmly on the downside, with the potential for several interrelated negative shocks. While the timely resolution of current challenges is possible, downside risks predominate.

The overarching priority for policymakers in most economies is to ensure price stability while bringing down debt levels and protecting the most vulnerable. However, despite efforts to help shield the most vulnerable, the poorest still bear a disproportionate share of the burden of high food and energy prices. Moreover, as borrowing costs have risen, vulnerabilities from elevated public and private sector debt levels have increased. In addition, the war in Ukraine, combined with sanctions and the continuing pandemic, has increased global fragmentation pressures, putting at risk multi-decade gains from increased globalization and adding downside risks to global growth, according to the International Monetary Fund (IMF). 

Despite some reduction in debt levels, GDP-weighted government debt is projected at around 120 and 70 percent of GDP this year in G-20 advanced and emerging market economies, respectively. Global government debt is projected to remain at about 7.5 percentage points of the GDP. This environment will affect not only Latin America and the Caribbean’s economic activity but also the region’s access and cost of financing, which is key for a region that has significantly increased its debt levels, according to the IMF’s report.