8 minute read
Chapter VIII Economic outlook and risks for Latin America and the Caribbean in 2022
Chapter VIII VIII
119
Economic outlook and risks for Latin America and the Caribbean in 2022
Latin America and the Caribbean is expected to grow by 6.2% in 2021 and to decelerate in 2022 In addition to the structural problems exacerbated by the crisis, in the second half of 2021, growing macroeconomic challenges and other risks are expected to condition the performance of countries in the coming year and beyond
Latin America and the Caribbean’s growth rate of almost zero before the COVID-19 crisis (0.3% in the six-year period ending in 2019) combined with a sharp contraction in 2020 (-6.8%) as a result of the pandemic, further exacerbated the structural problems already being experienced in the region: weak investment and productivity, informality, unemployment, weak coverage of social protection and health systems, and high levels of inequality and poverty (ECLAC, 2021).
These structural problems made even worse by the crisis were compounded in the second half of 2021 by growing macroeconomic uncertainties owing to inflation trends, both in the countries of the region and in developed economies. Latin American and Caribbean countries are also facing shrinking fiscal space and rising sovereign debt. Inflation and public debt dynamics are expected to condition the countries’ macroeconomic policies in the coming years. Therefore, amid projections for weak growth, these policies will have to reconcile greater momentum in economic growth with the objectives of domestic price stability and exchange-rate and financial stability. This would require maintaining pro-growth fiscal and monetary policies and using monetary, exchange-rate and macroprudential instruments to advance in the nominal stabilization of economies.
The region’s growth in 2021 was stronger than expected at the beginning of the year. Favourable international trends —in terms of financial conditions, commodity prices and global trade flows— combined with increased mobility within countries and progress in immunization processes resulted in an improved growth outlook for 2021.
ECLAC projects 6.2% growth for the region, 6.4% in South America, 6.0% in Central America and Mexico, and 1.2% in the Caribbean (excluding Guyana) (see figure VIII.1). However, in contrast to the general trend in the region, this year supply chain bottlenecks have affected manufacturing output in countries with major manufacturing hubs, such as Brazil and Mexico, to a greater extent than expected. This largely explains the downward revisions in growth in these two countries.
The region’s growth outlook for 2022 has been revised downward. ECLAC now projects a growth rate of 2.1% for Latin America and the Caribbean, 1.4% for South America, 3.3% for Central America and Mexico and 6.1% for the Caribbean (excluding Guyana) (see figure VIII.2).
With regard to the composition of aggregate demand, the projected recovery is expected to rely mainly on the domestic component, since the contribution of the external sector to GDP growth is not expected to be significant (see figure VIII.3).
Figure VIII.1 Latin America and the Caribbean (33 countries): projected GDP growth rate, 2021 (Percentages)
Guyana Peru Panama Chile Dominican Rep. El Salvador Argentina Colombia Honduras Nicaragua Central America South America Saint Lucia Latin America Latin America and the Caribbean Central America and Mexico Mexico Costa Rica Guatemala Bolivia (Plur. State of) Brazil Paraguay Jamaica Uruguay Dominica Ecuador The Caribbean Belize Bahamas Antigua and Barbuda Barbados The Caribbean (excluding Guyana) Grenada Cuba Trinidad and Tobago Suriname Haiti Saint Kitts and Nevis Venezuela (Bol. Rep. of) Saint Vincent and the Grenadines
-10
- 6.1
-5
- 3.0
- 1.0 - 1.0 - 1.3 - 1.8 3.2 3.1 3.0 2.7 2.3 1.8 1.5 1.2 0.7 0.5 6.7 6.4 6.3 6.3 6.2 6.0 5.8 5.5 5.4 5.2 4.7 4.6 4.0 3.9 7.4
0
5 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.
Figure VIII.2 Latin America and the Caribbean (33 countries): projected GDP growth rate, 2022 (Percentages)
Guyana Saint Lucia The Caribbean Bahamas Barbados Panama Belize The Caribbean (excluding Guyana) Trinidad and Tobago Jamaica Dominican Rep. Dominica Central America Honduras Guatemala Antigua and Barbuda Grenada Saint Kitts and Nevis El Salvador Paraguay Saint Vincent and the Grenadines Costa Rica Colombia Cuba Central America and Mexico Bolivia (Plur. State of) Uruguay Nicaragua Venezuela (Bol. Rep. of) Peru Mexico Ecuador Argentina Latin America and the Caribbean Latin America Chile Suriname South America Haiti Brazil
0
0.5 4.6 4.5 4.5 4.3 4.2 4.0 3.9 3.8 3.8 3.7 3.7 3.7 3.5 3.3 3.2 3.1 3.0 3.0 3.0 2.9 2.6 2.2 2.1 2.0 1.9 1.5 1.4 1.4
6.2 6.1 5.7 5.7 5.5
5
7.5 7.3 8.5
10
11.0
15
10.4 10.0 9.8 9.5 9.0
12.4 11.8 13.5
10
15.8 15
20
18.5
20
46.0
25
Figure VIII.3 Latin America: GDP growth rate and contribution of expenditure components to growth, 2017–2022a (Percentages)
10 8 6 4 2 0 -2 -4 -6 -8 -10 -12
2017 2018 2019 2020 2021 2022 GDP Goods and services exports Investment Public consumption Private consumption Goods and services imports
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. a Data for 2021 and 2022 are projections.
Following the sharp declines in 2020, all components of domestic demand are expected to rebound considerably this year. Private consumption is projected to have slowed from the third quarter of 2021 onward, following the strong increase in the first half of the year. The rate of growth in private consumption is expected to continue to ease at the end of the year as a result of the pressure on household incomes caused by the current upturn in inflation.
The slowdown in consumption growth rates is expected to intensify from the beginning of next year, amid a sluggish labour market recovery and an increase in inflation which is expected to weigh on households’ disposable income and spending. Added to this is the uncertainty about the health situation, which is expected to persist in 2022. However, consumption is expected to continue to be the main contributor to spending.
Investment trends by sector of activity are expected to be mixed depending on the differentiated impact of the crisis on each and the possible permanent changes in the demand for different goods and services.
In terms of trade, the disruption in the trade in goods after the emergence of the pandemic was temporary, as seen particularly in the second quarter of 2020. Limitations on the movement of people, however, have been more permanent and have had a lasting impact on tourist flows. Goods exports are projected to rebound more sharply in 2021, given the low base of comparison, and less sharply in 2022. Meanwhile, imports are expected to recover on the back of increased consumption and investment.
In addition to the structural problems exacerbated by the crisis, in the second half of 2021, growing macroeconomic challenges and other risks are expected to condition the performance of countries in the coming year and beyond
The lower projected growth rate for 2022 is explained by a number of factors that are expected to weigh on countries’ performance next year. In terms of the international context affecting the region, weaker global growth is expected in 2022, along with less dynamic external demand and slower growth in global trade. In addition, commodity prices are expected to remain stable or even be somewhat lower than in 2021.
Although international financial conditions remain favourable so far, the eventual withdrawal of monetary stimulus by the major central banks are expected to affect emerging markets, including Latin America and the Caribbean. The magnitude of these effects,
however, will depend on how gradually the United States transitions to a tighter monetary policy and how this affects global financial markets and the cost of financing for the region.
With regard to macroeconomic policies in the countries of the region, 2022 also presents growing challenges, as the countries have less monetary and fiscal space available to support the reactivation of economic activity. Inflation has been higher and lasted longer than expected a few months ago and this has led central banks in several countries in the region to start raising interest rates in order to keep inflation expectations close to their targets.
On the fiscal front, several countries have already adopted more restrictive budgets that seek to reduce fiscal deficits and stabilize debt ratios which rose significantly in 2020.
Finally, there is uncertainty associated with the evolution of the pandemic and the possibility that the appearance of new variants —like Omicron— could lead to new more or less widespread restrictions on mobility. This would have damaging impacts on economic activity that cannot be ruled out.
On the basis of the projected growth rates for 2021 and 2022, less than half of the countries in the region will manage to recover their pre-crisis activity levels of 2019. In 2021, 11 countries are expected to return to those levels, while in 2022, three more countries are expected to do so, bringing the total to 14 of the 33 countries in the region (see figure VIII.4).
Figure VIII.4 Latin America and the Caribbean: GDP in 2021 and 2022a compared with 2019 (Index: 2019=100)
110
105
100
95
90
85
80
75
70
65
Dominican Rep. Nicaragua Guatemala Paraguay Chile Colombia El Salvador Costa Rica Peru Honduras Argentina Brazil Uruguay Mexico Bolivia (Plur. State of) Panama Ecuador Haiti Cuba Venezuela (Bol. Rep. of) Guyana Jamaica Saint Lucia Trinidad and Tobago Bahamas Saint Vincent and the Grenadines Belize Grenada Dominica Barbados Saint Kitts and Nevis Suriname Antigua and Barbuda Latin America and the Caribbean
248 170
2019 2021 2022
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. a Data for 2021 and 2022 are projections.
This implies that by the end of 2022, almost three years after the start of the pandemic, more than half of the countries in the region will have failed to recover their 2019 GDP levels. In this regard, the pandemic has inflicted lasting damage on the growth of the economies of much of Latin America and the Caribbean, exacerbating the structural problems that already characterized the region before the crisis.
