Private Roundtable: 2022 Economic Outlook for Latin America and the Caribbean

Main photo: QuoteInspector.com

On February 16, 2022, the Inter-American Dialogue’s Corporate Program hosted a private roundtable for members to meet with Ilan Goldfajn from the IMF, Bill Maloney from the World Bank and Fitch Ratings’ Shelly Shetty to discuss the economic outlook for Latin America and the Caribbean. Michael Shifter, president of the Inter-American Dialogue, moderated the discussion.

The conversation started with remarks on the slower-than-expected economic recovery in Latin America and the Caribbean (LAC) for 2022. After a short recovery from the pandemic-related economic crisis, the region is now underperforming. As one speaker put it, “Latin America is stalled and the mood is grumpy.”

The group discussed the possible reasons behind the change.

• One speaker cited a “middle class squeeze” hitting the region’s citizens, with pension income proving to be less than expected and the quality of education poor.
  
  
• Moreover, small and medium-sized enterprises have been accumulating a lot of arrears as a result of economic lockdowns during the pandemic, and it remains unclear how the non-performing loans can be resolved.
  
  
• Indicators show that there has been inefficiency in government expenditure measures in response to the pandemic, meaning that a significant part of the GDP is being used sub-optimally.
  
  
• The education crisis, in which saw LAC lose 70% more than OECD countries and 13% more than global average in learning-adjusted years of schooling, will also lead to a less skilled workforce and less productive economies.
  
  
• Another concern was the digital gap of the region compared to other parts of the world, which will be crucial in relation to climate change adaptation and mitigation, for which innovation in the tech sector will be key in driving the energy transition away from fossil fuels.

General predictions for the future were not optimistic, since the economic recovery will be slowing to growth of about 2.4 percent on average for LAC countries.

Other than stimulating growth, additional challenges the region will face include inflation, with prices up 8.3 percent on average, and the fiscal consolidation policies that will need to be implemented. Central banks have been managing monetary policy well, one speaker noted, bit it is important that this continues.

Moreover, slower growth rates in China and higher interest rates in the United States will likely make external financing tighter. Exchange rates have been depreciating in the region, while commodity prices have been up. This is not a typical correlation, one speaker noted.

Looking ahead, one speaker suggested that Latin American state-owned companies must diversify away from commodities such as mining, in ways that companies in Asia have been able to do.

And finally, several political risks pose threats the regional economic outlook this year, such as social tensions, clashes over investment and development plans, and election cycle uncertainty, with key presidential races in Brazil and Colombia coming up.