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Latin America and Caribbean economies will grow by just 1% in 2023, according to IDB estimates



Despite minimal projections from the Inter-American Development Bank (IDB), a report produced before the Silicon Valley Bank’s bankruptcy found that “financial markets remain resilient” in Latin America and the Caribbean, Claims to “look good.” Prepare to overcome the next shock.”

he Inter-American Development Bank (IDB) said in its macroeconomic report released this Sunday, Latin America and the Caribbean will only grow by 1% in 2023 .

The IDB’s chief economist, Eric Parrard, admitted the data were “very low” and could even decline if the financial crisis escalated. Latin America is ‘solvent and resilient’ .

In Latin America and the Caribbean, “the banking system is part of the solution, not the problem,” and banks are “well-capitalized, highly liquid, low arrears and resilient in the face of shocks.” he explained.

He added that he was seeing “weeks of financial turmoil” in addition to “confidence issues with some banks”. This is unlike what he experienced in 2008 and the 2009 mortgage crisis “subprime” (high risk).

It should be noted that this document was produced before the crisis unleashed after the collapse of the US Silicon Valley Bank.

Latin America has a ‘very resilient’ financial system

Parad’s message is closely related to that of IDB President Ilan Goldfajn, who declared at a press point before the bank’s meeting in Panama City. Latin America has a ‘very resilient’ financial system .

Likewise, this is consistent with IDB’s own reports. Despite being produced before these hectic days, this report highlights the major potential risks to the financial markets.

According to reports, Latin America and the Caribbean ‘financial markets remain resilient’ and ‘seem well-prepared to weather forthcoming shocks’ This is because the bank’s profitability is at pre-pandemic levels and capital adequacy ratios “exceed regulatory requirements.”

too low growth

According to development bank forecasts, the region will grow by 1% in 2023. 1.9% in 2024. and 2.3% in 2025.

These figures are below expectations of organizations such as the International Monetary Fund (IMF). The latter, in its latest Economic Outlook report, forecasts the region to grow 1.8% this year and 2.1% in 2024.

“That’s why we are sending the message that our country’s development agenda is very low and that issues like productivity need to be addressed to create jobs and growth,” Parado said.

The slow growth in 2023 is due to weak global growth, rising interest rates, tighter global monetary policy, gradual fiscal consolidation, and high existing debt levels, the IDB said.

‘High uncertainty’

In fact, the IDB warns of “high uncertainty” and paints a negative scenario that could occur if the three existing risks materialize.

For one thing, immunity to covid-19 is relatively low in China, and new strains could weaken vaccine efficacy.

In addition to the above, Concern over possible escalation of war between Russia and Ukraine .

And finally, U.S. economic performance is likely to deteriorate, growth rates in major global economies will slow, unemployment will rise, and inflation will remain above 2%.

As these risks materialize, the IDB warns that the region could drop to 1.5% this year. In this negative scenario, Latin America and the Caribbean will also see him decline by 0.5 percentage points in 2024 and recover to grow by 2% in 2025.

Debt and Inflation, Challenges in Latin America and the Caribbean

One of the big challenges in the region is keeping inflation down, especially food prices. Parrado said it will continue to fall this year until it hits its 2024 “inflation target.”

To this end, it is “very important” for the central bank to continue its efforts and take measures to curb inflation, including raising interest rates, he added.

Food price inflation has been a particular focus in Latin America and the Caribbean, rising by as much as 30% between February 2020 and December 2022. It has a very direct impact.

Meanwhile, another major challenge for the region’s economy is the reduction of public debt.

“All governments have made considerable efforts to mitigate the effects of covid-19 and this has had a strong impact on the economy,” said Parrado. It is necessary to carry out a “financial plan”.

In the report, the IDB speaks of the “urgent need” to implement policies aimed at adjusting the fiscal balance. Some of his advice is to be more efficient in spending and tax collection. In addition to this, the fiscal regime and debt structure will be improved.

Source: Biobiochile

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