Is the region heading for another decade of weak growth?

Investment banks’ forecasts for Latin America next year are mixed. Morgan Stanley (MS) expects below-average growth for the region next year. Governments must decide how to finance growing social demands: That’s through tax increases or growing budget deficits. Both inhibit investment and reduce productivity. Central banks must also raise interest rates to counter rising inflation. That slows growth. Currency devaluation should be under control again from 2023, but until then it will reduce mass purchasing power.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

This scenario applies particularly to Brazil: high inflation, growing budget deficits and a high key interest rate will ensure growth of a meagre 0.5% next year, which will also see presidential elections that will cause political tensions. Brazil will not return to the growth trend (of 1.8% per year) until 2023.

Mexico will benefit from the recovery in consumer demand as well as global supply chains. MS expects 3.2% growth next year.

Argentina: Will the government still tackle reforms in the two remaining years and agree with the IMF on a debt restructuring? The chances are not good. Growth forecast: 1 %.

Colombia will benefit from higher oil prices and rising employment, leading growth in the region at 3.9%. Presidential elections will be held at the end of May. The outcome is completely open.

Chile is experiencing fierce political times with elections and a constitutional assembly meeting in parallel. After overheating as a result of consumer stimulus (pension fund withdrawals), the economy will grow by only 2.4% next year (after 11.8% this year) due to tight monetary policy.

In Peru, too, growth will be weaker in 2022 (3.2%) after the strong upturn this year (10.6%).

In both Andean countries, the expected global economic slowdown could lead to lower copper prices and political uncertainty could also cause a decline in capital expenditure.

Conclusion: With political calls for more government welfare benefits unlikely to prove temporary, MS believes it is likely that Latin America could face another decade of below-average growth.

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