Balance of financial flows to the region

year-on-year growth in the second quarter of 2021 was 22.0 %, but the figure is forecast to fall to 10.9 % in the third quarter and 6.6 % in the fourth quarter, due in part to the rapid recovery of trade in the last two quarters of 2020. Only 0.8 % quarter-on-quarter growth averaging 0.8 % each quarter in the second half of this year, equivalent to an annualized rate of 3.1 %, is needed to meet the forecast for 2021.

Trade volume growth is expected to be accompanied by market-weighted GDP growth of 5.3% in 2021 and 4.1% in 2022 (instead of the 5.1% and 3.8% previously forecast).

The income balance deficit, on the other hand, increased in 2021 mainly due to higher profit remittance by foreign investment companies, in a context of rising commodity prices. As a result of the aforementioned trends, after exhibiting a small surplus in 2020 (0.2 % of GDP), the current account of the balance of payments turned into a deficit again in 2021 and stood at 0.6 % of GDP. Indeed, debt issuance in the international markets by the region continued to rise and, in the first ten months of 2021, increased by 12.3 % compared to the same period in 2020, although this time with greater prominence of private debt and lower growth in sovereign issuance. Non-bank private sector issuance grew by 77 %, while sovereign issuance increased by 14 %, after experiencing strong dynamism in 2020.

The recovery in financial flows has, however, been accompanied by a deterioration in credit ratings in several countries in the region, with 12 credit rating downgrade actions in 2021, in addition to downward outlook revisions for almost all countries in the region, as well as a slight increase in sovereign risk, which even so still remains well below the figures recorded during much of 2018 and 2019.

Growth dynamics in 2021 were led by domestic demand. Private consumption was a key driver and contributed around half of second-quarter growth.

On the other hand, although exports grew significantly, the net external sector (exports minus imports)

Cumulative 12-month net portfolio capital flows to emerging markets and financial volatility in emerging markets, March 2011 to September 2021 (In millions of dollars)

200

150

100

50

0 60

50

40

30

20

-50 10

-100 Mar

Sep 2011 Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 0 Portfolio capital flows Financial volatility index in emerging markets

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from the International Monetary Fund (IMF), 2021 and Bloomberg