NEW YORK (Reuters) – Tightening global financial conditions and stubbornly high inflation cloud the outlook for Latin American and Caribbean economies, the International Monetary Fund said on Thursday.
The IMF earlier this week lifted its output growth forecast for 2022 in the region to 3.5% from a previous 3% estimate, but lowered the 2023 view by 0.3 percentage point to 1.7%.
“Financing is becoming scarcer and costlier as major central banks raise interest rates to tame inflation,” said the fund, while “domestic interest rates in emerging markets are also rising as their central banks are hiking rates to battle inflation as well, but also because of reduced investors’ appetite for riskier assets.”
In the region, this translates to higher borrowing costs slowing down economic activity.
An expected slowdown in the U.S. economy will hurt Mexico the hardest, as well as some Central American economies as trade, remittances and tourism growth will slow.
The fund warned that inflation pressures have broadened beyond food and energy, so despite the growth slowdown inflation could continue to rise.
Price increases in Brazil, Chile, Colombia, Mexico and Peru are expected to reach 7.8% at the end of 2022 and drop to 4.9% next year, still above their central banks’ tolerance bands.
(Reporting by Rodrigo Campos; Editing by Chizu Nomiyama)
