If in 2021 the world economy managed to get out of the hole into which it had fallen in 2020, this year it will have to get back on its feet.
Many of the wounds caused by the covid-19 pandemic were treated by governments with gigantic fiscal rescue packages that injected local economies with a flow of money equivalent to the effect that an artificial respirator has on a patient who has no air.
The central banks did the same, lowering interest rates to stimulate growth and buying sovereign bonds to pass the bitter pill of a pandemic that, after the start of vaccination, has been giving way little by little, although the situation continues to be complicated.
Now, however, the wave of fiscal and monetary stimuli to face the emergency is coming to an end and many countries have been left with half-empty coffers, with more poverty and high levels of public debt.
Is a challenging 2022 coming? Yes, particularly in those vulnerable countries where vaccination is slower and whose economies carry the open wounds of a virus that refuses to go away.
The Latin American economy will grow only 2.1% this year , according to the latest projections from the Economic Commission for Latin America and the Caribbean (ECLAC), with Panama leading the recovery and Brazil in last place on the list.
This comes amid severe disruptions in the supply chains that move products from Chinese factories to the rest of the planet, along with a global wave of inflation, which in the United States reached 7%, the highest level in the last 39 years. years.
It is the same wave of inflation that in countries like Brazil and Mexico has reached its maximum in 20 and 18 years respectively, with the sustained increase in the price of energy and food.
“We are going to experience a more complex and difficult situation for the region,” says Daniel Titelman, director of ECLAC’s Economic Development Division, in a dialogue with BBC Mundo.
A sharp slowdown in growth is approaching, while there are low levels of investment and productivity, and a slow recovery in employment, with little room for fiscal maneuvers, in a context of a foreseeable increase in interest rates and currency depreciation local.
These are three of the main factors that will influence Latin American economies in 2022.
1. The world will grow less
The world growth forecast for 2022 will be lower than that of last year, approaching 4.9%, according to ECLAC projections.
In this context, the two largest trading partners in Latin America, the United States and China , will continue this trend of economic slowdown, affecting the recovery of the countries of the region.
For now, bottlenecks in supply chains are likely to persist for several months, accelerating shipping costs and slowing the flow of international trade.
2. The price of borrowed money
Financial conditions will be more restrictive to the extent that inflationary pressures persist.
If the rise in the cost of living continues, the US Federal Reserve (Fed) and the central banks of other rich countries are likely to raise interest rates to control the situation.
“To the extent that the perception that interest rates in the developed world are going to rise increases, more restrictive conditions will be generated for access to financing by our countries,” explains Titelman.
Higher interest rates or the reduction of asset purchases by central banks, he explains, could generate volatility in financial markets and create difficulties in emerging and developing economies.
What happens is that when rates rise in developed countries, investors move their capital to them from regions such as Latin America because it is more profitable for them.
Thus, the countries of the region have to pay more interest when borrowing money abroad.
On the other hand, when interest rates rise in the US, one of the effects that occurs is that the dollar appreciates in relation to the local currencies of the countries of the region.
From the perspective of families, as interest rates have already been rising significantly in Latin American countries, the cost of borrowing money is already skyrocketing.
It has become more expensive to ask for a loan and, for that reason, many people have difficulties to acquire a home.
Economists project that if inflation remains high, interest rates are likely to continue to rise, although that will depend on the situation in each country.
3. The price of raw materials
Last year the price of raw materials registered a strong increase, which favored several commodity exporting countries in Latin America.
However, that great boost would not be repeated this year.
ECLAC’s projection is that prices remain at the level they are currently at or that they experience a slight drop compared to 2021.
The countries that have benefited most from the rise in the prices of raw materials have been the hydrocarbon exporters.
The tightrope walker game
One of the biggest challenges the region will face in 2022 is to reduce inflation without hurting growth.
As if it were a tightrope walker, the countries will be faced with the dilemma of finding the best formula to lower prices and, at the same time, promote economic recovery and job creation.
“Central banks have other tools to control inflation that go beyond interest rates,” says Titelman.
“It is not necessary to punish growth too much for worrying about inflation,” he concludes.