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Thursday, June 1, 2023

Forecast shows Latin America will face a tough 2023 with just 1% growth, as projected by IDB

Latin America and the Caribbean will face a “difficult” 2023, with an estimated economic growth of barely 1% due to “uncertainties” in the global scenario, the Inter-American Development Bank (IDB) warned Sunday.

“In general, 2023 will be difficult for Latin America and the Caribbean, given the complexity of the global scenario and its significant uncertainties,” with 1% growth if no new difficulties arise, the IDB said in its 2023 Macroeconomic Report, presented by its chief economist, Eric Parrado, on the final day of the organization’s annual assembly in Panama.

“On the side of the specific economic growth of Latin America and the Caribbean what we estimate for 2023 is that growth will be around 1% […], which for the development challenges of our countries is very low,” said Parrado.

The IDB’s projection is lower than the 1.8% growth forecast for the region this year by the International Monetary Fund (IMF) and the 1.3% predicted by the UN Economic Commission for Latin America and the Caribbean (ECLAC).

The IDB assembly, which brought together the heads of finance of the region’s countries, was held in the midst of concerns following the bankruptcy of three banks in the United States, including Silicon Valley Bank, as well as difficulties at the US First Republic and the Swiss Credit Suisse.

The IDB even contemplates the possibility of 0% growth this year in the region if there is a “financial shock”, said Parrado.

The gloomy Macroeconomic Report was presented a day after the IDB’s new president, Brazil’s Ilan Goldfajn, stated that the economic outlook for Latin America and the Caribbean is clouded by “overlapping crises”.

However, Goldfajn expressed confidence Sunday that the region’s banking system will not be affected by the storms in banks in the United States and Europe.

“The region’s financial systems are very well supervised, regulated […], we are in a more advanced step than we were in the past,” he said at a press conference after the closing of the assembly.

Financial shock

“Growth prospects for the region in 2023 look less promising than the recovery period of 2021 and 2022. This could increase the risk of widening gaps associated with the region’s triple challenge of improving social conditions, strengthening fiscal accounts, and promoting long-term growth,” the IDB report said.

“Latin American and Caribbean countries face a year in which global demand may be depressed – partially offset by China’s reopening after its strict covid-related confinements – and high financing costs” from rising interest rates, it adds.

This scenario “raises the serious specter of deteriorating poverty and inequality,” says the report, which forecasts that in 2024 the region would grow 2%.

Parrado explained that a “financial shock” in Latin America and the Caribbean “could generate 0% growth” this year.

“We have the base scenario, which is 1% by 2023, but we also have a more stressed scenario, where we consider real shocks or financial shocks,” Parrado said.

“And today the financial shock is somehow associated […] to the financial situation of some banks in the United States and some banks in Europe,” the IDB chief economist added.

Goldfajn said that in the closed-door deliberations there was support for his proposal to evaluate the “effectiveness” of the credits that the organization grants to Latin American and Caribbean nations.

“We have to be sure that we are doing the best with every dollar invested,” he said.

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