By: Staff Writer
January 6, 2023
The Economic Commission for Latin America and the Caribbean (ECLAC) forecasts that 2023 will start off slowly for economies across the region as the fight against inflation continues.
ECLAC in its annual report Preliminary Overview of the Economies of Latin America and the Caribbean, said that this sharp slowdown in growth that is continuing from late 2022 is accompanied with continued inflationary pressure. This in turn will force central banks to respond to the high inflation with monetary policy measures and attempt to manipulate interest rates to tamper things down.
The report also said: “On the fiscal side, although the primary deficit has narrowed, debt levels are still high. Fiscal space may therefore be expected to continue to determine public spending patterns. Added to these macroeconomic complexities are a decline in creation of formal jobs, a rise in informality, stagnation or falls in real wages, drops in investment and growing social demands. All this puts pressure on macroeconomic policy, which must reconcile efforts to promote economic recovery through investment and job creation, on the one hand, and to control inflation and pursue fiscal sustainability, on the other.”
All of this has been made worse by the Russian invasion of the Ukraine forcing global growth projections to be slashed to 3.1 percent compared to the rate prior to the invasion in 2022 which stood at 4.4 percent.
On top of the Russia/Ukraine conflict, global trade has also decreased and projected world trade volume growth in 2023 was lowered from the figure of 3.4 percent given in April to just 1.0 percent in October.
The report also said: “The invasion of Ukraine last February, and the effect this has had on food and energy prices, accentuated inflationary trends that were already apparent in 2021. Producer and consumer price indexes increased across the board in 2022, in some cases hitting levels not seen for decades.
“In this context of high inflation and a risk of expectations becoming unanchored, the global monetary policy response has been the most synchronized in several decades, with the largest number of simultaneous policy rate hikes since at least 1970. Among the major central banks, the United States Federal Reserve had raised its policy rate by 375 basis points by November 2022, putting it at 4.0 percent; the European Central Bank (ECB) set its rate at 1.5 percent in October; and the Bank of England had raised rates 275 basis points in 2022 to 3.0 percent by November. In all three cases, further rate hikes are expected until at least mid-2023.”
The region should expect liquidity to tighten and access to borrowing to become more difficult as the larger countries tighten more of their money supply in 2023.
With high inflation and limited access to liquidity is spelling a dark 2023 with high prices and low incomes, for a region already suffering from structural deficiencies, this may put many of them over the brink in terms of economic expectations from their respective citizenry.