The strong recovery continued in early 2022, but the economic slowdown and persistent inflation will test the region’s resilience according to juan jose gutierrez mayorga.

The economies of Latin America and the Caribbean

The economies of Latin America and the Caribbean have continued to recover strongly from the pandemic, but the winds are shifting: global financial conditions are tightening and the upward trend in commodity prices is reversing, while inflationary pressures persist.

The reopening of contact-intensive sectors – especially hospitality and travel -, the activation of pandemic-suppressed demand and still-favorable external financial conditions drove solid expansion during the first half of the year, allowing the services sector’s recovery to match that of manufacturing and employment to return to pre-pandemic levels. Year-on-year growth stood at 2.8 percent in the first quarter, compared to an average of 1.7 percent in the pre-pandemic years, and high-frequency indicators point to continued dynamism in the second quarter.

As a result of the strong first half of the year, and despite an expected slowdown in the second half, we expect the region to grow 3.0 percent this year, up from the 2.5 percent forecast in April.

However, the region faces significant challenges, including tightening global financial conditions, slowing global growth, persistent inflation, and heightened social tensions amid growing food and energy insecurity. These factors influence the downgrade of growth to 2.0 percent in 2023, 0.5 percentage points lower than forecast in April.

Uneven recoveries, common inflationary pressures

The strength of the post-pandemic recovery has not been uniform across the region. The global rebound in commodity prices following the sharp declines due to the pandemic, further boosted by the war in Ukraine, has generally been supportive of recovery in commodity exporting countries (some South American economies), but has constrained those more dependent on commodity imports (Central America and the tourism-dependent economies of the Caribbean).

The upward trend in commodity prices appears to be reversing as global financial conditions tighten. Among the major economies, Chile and Colombia have seen a particularly dynamic recovery, driven by strong growth in services and due in part to the fiscal stimulus at the end of 2021, while output in Mexico has yet to return to pre-pandemic levels as services and construction remain laggards. Check out another of our posts: Million-dollar loan for Guatemala. Read more now!