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HomeNewsCosta RicaGrowth Slowdown Eroding Latin America Living Standards

Growth Slowdown Eroding Latin America Living Standards

Living standards for many Latin Americans will fall this year due to slowing growth, high inflation and global uncertainty, the International Monetary Fund (IMF) warns Wednesday. 

“2023 is likely to be a challenging year for the region,” which will grow 1.8% (down from 1.7% forecast in October).

This is mainly due to higher interest rates -which make credit more expensive-, and falling commodity prices -which the region exports-, explain Gustavo Adler, Nigel Chalk and Anna Ivanova, from the IMF’s Americas Department, in a blog.

The Fund expects Brazil to grow 1.2%, Mexico 1.7%, Argentina 2%, Bolivia 2.9%, Colombia 1.1%, Ecuador 3%, Paraguay 4.3%, Peru 2.5%, Uruguay 3.6%, Venezuela 6.5%, Costa Rica 2.9%, Dominican Republic 4.3%, El Salvador 1.7%, Guatemala 3.4%, Honduras 3.5%, Nicaragua 3%, Panama 4% and Haiti barely 0.3%.

Chile is the only country in the region whose economy will contract this year, by 1.5%.

Inflation Eases but Remain High

Inflation is receding in many countries, although it will remain high in some, such as Mexico (4.8%), Brazil (5.7%), Colombia (7.3%), Chile (5%), Uruguay (7.2%), Honduras (6.2%) and Nicaragua (6.1%). And it is still at stratospheric levels in Argentina, with forecasts of 60% after almost 95% in 2022, or in Venezuela, with 150%.

But core inflation, which excludes volatile prices such as food and energy, will remain high anyway, at around 8% in Brazil, Mexico and Chile, and even somewhat higher in Colombia.

“Slowing growth, high inflation and global uncertainty mean that many people in the region will see their standard of living decline this year and are likely to face increased anxiety about their future,” the experts say in the blog. 

The growing social discontent, which was exacerbated during the pandemic, and the loss of confidence in public institutions, has persisted in the region for some time. 

The poorest were the hardest hit by the economic consequences of covid despite government aid, “as evidenced by the considerable increase in poverty”. 

The increase in food insecurity is, according to the authors of the blog, another symptom of the socioeconomic effects of the pandemic.

Fair taxation

Instability hits not only the poorest but also the middle class, albeit to a lesser extent.

“Many small businesses struggled during the confinements and the wages of middle-income workers were eroded by the subsequent rise in prices,” the article’s authors explain.  

The continued possibility of unrest can in turn erode confidence and affect economic activity.

To change the wind, the experts recommend carrying out structural economic reforms, although they acknowledge that it will be “an uphill battle.”

According to the IMF, governments should aim to stimulate growth and address the social needs of part of the population.

To achieve this, central banks must continue to lower inflation in a “tenacious” manner. Interest rates are not expected to rise further this year in some countries, although they will remain high “for some time”. 

Governments must allocate more funds to the poor and seek a reduction in public debt, without losing sight of the fact that confidence in their governance will continue to fall unless “they make the rich pay their fair share of taxes.” 

“These reforms will be the main means, over time, to raise the standard of living” of the people of Latin America and the Caribbean, conclude the authors of the article, published as part of the IMF’s economic forecast review.

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