Thursday, March 28

Inflation in Latin America could begin to stabilize between April and May


Inflation in Latin America could start to converge towards the upper limits of target levels established by central banks from April or May, depending on the Institute of International Finance (IIF for its acronym in English).

Since then, the region’s monetary authorities could begin to pause the roadmap contractive started last year. This was explained in statements to Europa Press by the head of research for the Latin American area of ​​the IIF, Martín Castellano.

However, Castellano has recalled that this will not apply to all countries, since some economies have the challenge that they are more exposed to the United States and the possible rate hike by the Fed, as is the case in Mexico. In this case, the IIF expert indicates that additional rate hikes could be seen as the Fed exercises its adjustments.

Moderate growth and lower investment

On the economic growth side, Castellano expects that the region registers a rebound of less than 2% in 2022, after having grown more than 6% in 2021 –according to preliminary data– due to fiscal stimuli and favorable external factors such as the high price of raw materials.

Forecasts for this year point to a moderation in the recovery which could be insufficient for the needs of the region.

The prospects for this year are of a moderate growth that does not reach 2%, quite modest for what the region needs in terms of social needs”, explained Castellano, who specified that these levels are below the potential of many economies and even at a zero level, as could be the case of Mexico.

In regards to the foreign direct investment (IED), during 2021 the region reached $121,000 million(106,647 million euros) approximately, above the $90,000 million (79,324 million euros) registered in 2020. However, for this year more moderate levels are expected that will be below the pre-pandemic, although high in historical terms.

Castellano explained that This lower FDI is due to factors such as low growth, which “does not help attract investment”, as well as the uncertainty linked to the economic policy of the different administrations.

There are no big improvements in sight that would allow us to be too optimistic about FDI flows, which depend more on these structural factors looking at a longer horizon”, has indicated Castellano.

Capital flight

Regarding capital outflows in 2021, Castellano highlighted the capital flight of non-residents in Mexico during 2021. The North American country experienced three consecutive quarters of departures, something not seen since the 1994 crisis.

Brazil, for its part, especially experienced outflows of residents, who invested more abroad. In the case of Argentina, Castellano points to its lesser access to foreign investors, while in Colombia and Chile the situation has been a little more varied, with strong capital inflows during the period, but also with months of outflows of residents as that the electoral processes were approaching.

Further, the flows of residents will also be moderated by the electoral processes in countries such as Brazil, Colombia or Costa Rica. “We believe that this is going to keep residents investing more abroad than locally,” Castellano said.

Argentina and the IMF

On the side of Argentina and its negotiations with the IMF, the analyst does believes that an agreement will be reached between both parties, although uncertainty still persists about what will be the content of the final deal between the country and the agency.

There are still differences regarding some aspects because it will surely be an agreement medium-term that requires reforms more linked to how to increase growth and how to lower inflation and there is still no agreement on these issues”, he indicated.

Regarding solutions to lower inflation in the country, which closed at a level of 50.9% in 2021, andhe Argentine Government will face the double challenge of implementing stabilization measures and converge to lower inflation levels and at the same time put some imbalances in order.

Here, according to Castellano, the main challenge is in the fiscal part, where he recommends “going towards an aggressive path to order public finances”. “That can help build confidence and can be expansive from a growth point of view, which is also what is needed to minimize the cost of the adjustments that have to be made,” he added.



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