Latin America Economic Development Forecast to 2023
On the occasion of the publication of the World Economic Outlook in April, the IMF delivers a now widespread diagnosis: better than expected growth in 2022 in Latin America, sharp slowdown but risk of resilient underlying inflation in 2023 After proving to be still sustained in 2022 (3.7%), average regional growth should slow down significantly in 2023 (1.7% then 2.2% in 2024) while avoiding a recession.
Only Chile would record negative growth in 2023 (-1%) while Peru and Mexico would post more sustained growth (respectively, 2.4% in 1.8%). Over the entire period (horizon 2028), Mexico would nevertheless still not have caught up with its peers, attributable to the slowness of the exit from the post-pandemic crisis. Despite the fall in headline inflation, mainly due to the decline in commodity prices, core inflation should remain high. Domestic demand that is still sustained, rising wages and the downstream diffusion of upstream price pressures pose the risk of falling regional inflation (7.8% over 12 months in December 2022 ) but still too high (5.4% at the end of 2023 then 3.7% at the end of 2024). In 2023, only the inflation rates of Peru (3%) and Colombia (8.4%) would move away from the regional average. Finally, in order to bring inflation back towards their respective targets over a two- to three-year horizon, central banks may have to keep key interest rates high in 2023 and, probably, in 2024.
The IMF also delivers a study (already quoted (2)) of the potential consequences of geo-economic fragmentation (3) on foreign direct investment (FDI). The slowdown in globalization is not new since it began in the aftermath of the great financial crisis with a decline in global FDI from 3.3% of GDP in the 2000s to 1.3% between 2018 and 2022. In the wake of Brexit, Sino-American trade tensions, the war in Ukraine, companies (but also policy makers) are now considering strategies to relocate production processes to countries with “aligned political preferences” in order to reduce the fragility of supply chains to geopolitical tensions.
To assess the fragility of host countries of FDI stocks likely to be relocated, the study uses a multidimensional vulnerability index. This risk assessment itself combines three criteria: the geopolitical distance between the source country and the host country, the market power enjoyed by the host country in each industry hosting FDI and the strategic dimension of the stock of IDE (4) . Geopolitical and strategic vulnerability criteria are uncorrelated and capture different aspects of vulnerability. If the geopolitical vulnerability is concentrated on the emerging economies, many large advanced economies (including the United States, Germany, Korea) are likely to be affected under the strategic dimension. Within the doubly fragile countries appear some large emerging markets (such as Brazil, China and India). The fragmentation of FDI is therefore likely to be a problem for a large number of countries.
Moreover, although the measurement is far from perfect (all types of flows are aggregated), the net flows of capital to emerging countries already signal a disaffection: we are far from the massive net inflows of the early 1990s. 2010. While China continues to be a net exporter of capital, the post-pandemic recovery in net flows is benefiting India, emerging Europe and Latin America. Within the latter, three recipients stand out favorably: Brazil, Chile and Colombia. It will nevertheless be necessary to “zoom in” on the exact nature of the flows in order to avoid drawing too hasty conclusions.