WASHINGTON, DC - THE Latin America and Caribbean region is said to see slower economic growth in the face of growing challenges, including the rising inflation and the problem of higher interest rates.
In his overview of the post-pandemic situation, Nigel Chalk, Acting Director of the Western Hemisphere Department, commended those countries in Latin America and the Caribbean region for the work to see significant growth over the 2021 and 2022 period, noting that they would likely avoid a recession this year.
“In the region, the Western Hemisphere has proven to be very resilient in the face of multiple shots over the last few years, and growth is repeatedly surprised on the upside. After growing by seven percent in 2021, Latin America and the Caribbean grew by a respectable four percent in 2022,” Chalk said while noting that outputs and employment are now comfortably above pre-pandemic levels.
But nations are warned to be wary that there would be declining growth within the region this year.
“Nonetheless, we expect growth to decelerate to 1.6% this year, although we expect most of the region will avoid a recession. This slowdown is not surprising, given that the region’s main trading partners are also slowing. The favourable terms of trade that we saw in the aftermath of COVID is less than somewhat, and global financial conditions are less friendly than they were a year ago,” Chalk declared.
St. Kitts and Nevis, for example, saw significant growth last year following periods of slowdown due to the COVID pandemic, and there are also positive outlooks for the Federation for 2023 with growth expected to be around four percent.
But just as the slowdown is expected, Chalk reminded that inflation would continue to be a problem affecting countries within the Western Hemisphere, where lower-income households would be disproportionately most affected, “particularly as it has been concentrated in large increases in food prices and because wages have been unable to keep up with these higher prices”.
“After peaking at around 10 percent in mid-2022 for the average of the region, headline inflation in the largest Latin American economies has now decelerated to around seven percent in March. However, progress in bringing down core inflation appears to have stalled. Core inflation in these economies averaged 8.4 percent in February, and for most countries, inflation remains well above the Central Bank’s target range. Nevertheless, we have to commend the Central Banks in the region for their quick and assertive response to inflation, which has been effective in anchoring medium-term inflation expectations and creating an environment for disinflation to eventually take hold,” Chalk said.
In order to tame the high inflation rates, Central Banks in the region have increased interest rates, and the Acting Director believes that those institutions would need to keep rates high for the remainder of the year and into the better part of 2024 to ensure that the decline is unambiguous.
He touched on the importance of the Fiscal and Monetary Policy used by both Governments and Central Banks in the Latin America and Caribbean region.
Meanwhile, the topic of government spending was also a point raised by the Acting Director, who called for a reduction in the “inefficiencies in public spending”.
“We also believe the population is more likely to embrace a more prudent public finance if government services are seen to be provided efficiently. We also think that taxes can be redesigned to both raise revenue and make the tax systems more progressive. The wealthy and the more fortunate should pay more of their fair share to help maintain social cohesion and also to invest in long-term growth. ”
The discussion of taxes is a very touchy topic for the people of St. Kitts and Nevis, and with the expected slowdown it could be an avenue to be explored. In its IV country report, the International Monetary Fund, among other things urged the government to either return personal income tax or find new sources of revenue.
Touching on the recent banking issues recorded in the United States and Europe, Chalk noted that they have seen the stresses having had little impact on Latin America and in the Caribbean.
“In part, this is because the direct linkages between Latin America and the troubled institutions in the US and Europe are relatively limited. Also, in part, this is a payoff from past investments in the region to strengthen supervision and regulation and hold the region’s banks to a high standard,” added Chalk.
