Latin America’s GDP Growth to Drop in 2023: Moody’s
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Latin America’s GDP Growth to Drop in 2023: Moody’s

Photo by:   Guille Álvarez, Unsplash
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Sofía Hanna By Sofía Hanna | Journalist and Industry Analyst - Mon, 01/16/2023 - 13:36

The Gross Domestic Product (GDP) of Latin America could grow by 1% in 2023, which denotes a sharp drop from 2022’s 3.8%, reports Moody’s. Expectations show that the region’s GDP will be strongly affected by a slowdown in productive activity due to both internal and external factors. 

This potential slowdown had been expected since last year even though the region had not experienced economic declines like those seen in the rest of the world. 

According to a new report by Moody’s Analytics, the region will grow its GDP compared to other countries, but at a slower pace. The firm reports that Uruguay will see the most significant growth during 2023, with a rebound of 2.4%, followed by Peru with 1.8% and Colombia with 1%. In addition, the region will face tightening global credit conditions due to the withdrawal of liquidity by central banks, as well as constant interest rate hikes. By 2024, the region’s GDP is expected to enter a stabilization phase and could grow by over 2%. 

Latin America’s economic slowdown “reflects both the monetary authorities’ efforts to control inflation and the side effects of an inauspicious global outlook. Somewhat sluggish growth in the US and China is expected to dampen demand for exports while rising US interest rates are likely to mean that financial conditions will remain tight,” writes the World Bank, as previously mentioned in MBN. Additionally, the outlook for world trade in 2023 is not favorable, given global conflicts. Trade of regional goods continued to recover in 2021 and 2022, but it had weaker momentum in the latter year that was driven mainly by higher prices for several of the region’s primary export commodities, especially oil, according to the Economic Commission for Latin America and the Caribbean’s (ECLAC) most recent report. 

Mexico’s largest risk is an additional and sustained tightening of financial conditions in the context of high inflation and lower economic growth prospects. Among the different financial intermediaries, commercial banks stand out for the reactivation of credit granting, with manageable levels of delinquency and high capitalization and liquidity levels. Although the country’s economic activity continues to recover, financing has not yet reached its pre-pandemic levels, according to a study by BBVA Research. According to International Monetary Fund (IMF) expectations, the country could see a real GDP growth of 1.2% in 2023, 1.8% in 2024 and 2.1% in 2025.

Photo by:   Guille Álvarez, Unsplash

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