Despite some brief increases in volatility related not only to the effects of the pandemic but also to expectations about the inflation outlook and the possibility of early withdrawal of monetary stimuli, international financial markets performed well in 2021. This increased the likelihood that central banks in developed economies would reduce their monetary impulses, which would be detrimental to emerging markets. Despite some brief increases in volatility related not only to the effects of the pandemic, but also to expectations about the inflation outlook and the possibility of early withdrawal of monetary stimuli, international financial markets performed well in 2021. This increased the likelihood that central banks in developed economies would reduce their monetary impulses, which would be detrimental to emerging markets.
The forecast for global economic growth in 2021 was 5.8 percent, owing to a deficit in the balance of services, which was primarily influenced by a deterioration in the account for the provision of transportation and other services, which increased imports of real estate. The deficit of the income balance, on the other hand, increased in 2021, initially due to greater issuance of profits by foreign investment companies, in the context of rising basic product prices, with the account current balance of payments at a deficit ratio set at -0.6 percent of GDP in 2021. Given the oscillation, a 4.9 percent average is expected this year due to logistical issues with the region’s two major commercial partners, the United States and China, due to high shipping costs and delays. Furthermore, a reduction in the financial stimulus programs designed to reduce the negative impact of pandemic in 2020 and 2021 is expected.
EXTREME ECONOMIC DESAFIOS
The most optimistic forecast for regional growth is in the construction, commerce, manufacturing, transportation, and communications sectors, which showed a generalized increase in the second quarter of 2021, but not at the expense of the other sectors, which also announced a strong recovery between 2020 and the first quarter of 2021, not only by increasing formal employment in these sectors but also by increasing informal employment.
It is predicted that by 2022, developed economies will be the only ones to see a greater or equal increase in economic growth, but with the growth demonstrated by the region’s startups in the last two years, this could change.
It should be noted that an element that will affect the dynamism of the region’s monetary policy is the deployment of inflation since the second half of 2020, which is known to have been in a general way, although the highest level is registered in countries of South America, where it presented 7.0 percent as of September 2021, which is considered an increase of 3.9 percentage points compared to December 2020. As at the global level, certain supply and demand factors, such as global trade tensions, suspensions in logistics chains, and high depreciations in regional currencies, have influenced regional inflation dynamics.
In 2022, it is planned to maintain a fiscal policy in favor of Latin America’s economic growth, which encourages investment and collaboration in macroeconomic issues, thereby accelerating the recovery of economic sectors and laying the groundwork for long-term growth; however, increases in interest rates and difficulties in capital markets may persist as a minimum until the middle of 2022.
In terms of net capital flows to emerging markets, they are favored by the low volatility environment and have maintained the upward trend that began in the middle of 2020 and has remained stable throughout 2021.
This does not imply a reduction in the monetary authority’s balance sheet, but rather a slower rate of monthly growth.
The fight against inflation will have to be combined with structural policies that promote growth, because Latin American economies are losing momentum despite having had a lot of help from strong commercial growth, the level of raw material prices, and appropriate external financing conditions.
In terms of 2022, the growth rate is expected to be 2.4 percent, down from 3 percent in October of 2021.
The year 2021 was marked by rising inflation in Latin America’s largest economies, with prices rising by 8.3 percent, one of the highest rates in the last 15 years.
This is evident due to the rise in food and energy prices. In terms of subyacent inflation, which discriminates against these prices, there was a 6.3 percent increase, which was swift and indicates that it was more widespread than previous pandemia trends, which were 5.3 percent on average in other emerging markets.
Despite price increases and other factors, we can say that the Latin American market is one of the strongest and fastest growing in the world. However, the strength of emerging markets allows us to provide favorable figures in the region. Furthermore, startups in the region are demonstrating a progressive increase, which benefits the region’s economy by lowering unemployment rates and increasing the PIB.