WASHINGTON, DC – The World Bank on Tuesday said global growth is slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of Ukraine.
In its latest Global Economic Report, the Washington-based financial institution said economic growth in Latin America and the Caribbean (LAC) is estimated to have grown 3.6 percent in 2022.
It said robust expansion in the first half of the year was driven mostly by consumption, supported by recovering labor markets. However, activity weakened late last year as slowing global growth and tighter financial conditions started to take effect.
According to the bank, inflation surged in 2022, reaching multi-decade highs in many countries, with price pressures broadening to a wide array of goods and services.
It said food prices rose particularly rapidly, while headline inflation appeared to peak in the middle of the year in most countries, but it remains well above central bank targets.
Accordingly, central banks continued raising policy rates last year, into double digits in the region’s largest economies.
According to the World Bank, growth in LAC is expected to decelerate sharply, to 1.3 percent in 2023, before recovering somewhat to 2.4 percent in 2024.
“The slowdown reflects efforts by monetary authorities to tame inflation, and spillovers from a weak global outlook. Sluggish growth in the United States and China is expected to curtail export demand, while rising US interest rates are likely to keep financial conditions restrictive.
“Slow global growth is expected to weigh on commodity prices, weakening South America’s terms of trade. Regional investment is expected to decline this year, dampened by higher financing costs, soft business confidence and elevated policy uncertainty. “
According to the Bank, the Caribbean is expected to see firmer expansion, at 5.6 percent, but this partly reflects a long-delayed recovery from the pandemic-induced recession.
“Risks to the outlook are skewed to the downside. Weaker-than-anticipated global growth could weigh heavily on commodity prices, undermining economic activity in the region’s commodity exporters. Further tightening of global financial conditions could also lead to financial stress in the region’s more vulnerable economies. “
The financial institution said domestic inflation in LAC could prove more persistent than anticipated, risking a move up in long-term inflation expectations.
It said bringing inflation durably under control could then require additional large interest rate increases.
“While potentially necessary, this could further suppress near-term growth. More broadly, the baseline forecast indicates stagnating living standards in the first half of the 2020s, with average per capita GDP (gross domestic product) growth of 0.6 percent per year over 2020-24. This could make it harder to combat a wide range of social issues, worsening barriers to sustained, inclusive development in LAC,” the World Bank said.
According to the World Bank, the global economy is projected to grow by 1.7 percent in 2023 and 2.7 percent in 2024.
“The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95 percent of advanced economies and nearly 70 percent of emerging market and developing economies,” it added.
