Nevertheless, are these factors enough to lead to a recession in Latam? Not necessarily. The conspicuous exception is gas, whose price has soared since the start of the war in Ukraine-up 79% in the US market and 109% in Europe.Ī drop in commodity prices is usually a harbinger of economic hardship in Latam because commodities are the region’s main exports and constitute a crucial source for incoming international reserves and government revenue. For example, compared to 2022 peaks, oil is down 27%, copper 24%, zinc 28%, nickel 33%, silver 25%, gold 14%, wheat 29%, soybeans 10%, and maize 10%. This has tapered global demand, which in turn has depressed the prices of oil and other commodities. economy within the next 12 months: A survey by Bloomberg in October pins the odds of a downturn in the United States at 60%. There is an increasing belief that a recession (or a larger slowdown) is set to hit the U.S. Prospects for 2023 are less rosy than those for 2022, as several headwinds cloud the regional outlook. Conversely, economic growth in the three largest Latam economies-Argentina, Brazil, and Mexico-lag the rest of the globe. However, we still forecast an economic expansion of 3.4% for Latam in 2022.4 Highlights of this overall recovery include countries such as Chile, Colombia, Costa Rica, and the Dominican Republic, which witnessed better post-pandemic recovery than the rest of the world. Then, in 2022, the war in Ukraine broke out, which has decelerated this recovery. The result: The region grew by 6.8% in 2021,3 with GDP of half of its countries surpassing pre-pandemic levels. The region benefited from a surge in commodity prices driven by strong demand when the global economy reopened. In 2021, Latam rebounded from a pandemic-induced economic contraction. In this article, we take a closer look at these issues and try to answer two questions: Is Latam heading toward a recession? And how likely is Latam to face a debt crisis? We will also discuss the potential growth opportunities on the horizon for Latam economies that could help the region withstand a global economic downturn. Consequently, we at Econosignal (the economics unit at Deloitte Spanish-Latin America) have revised our forecast for the region’s growth in 2023 from 2.0% to 1.7%. Such weakening economic activity is bound to dampen growth prospects in Latin America (Latam). Most economic forecasts in recent months have reflected this sentiment. The far-reaching impacts of the ongoing war in Ukraine, such as persistently high energy and food costs, have further weakened a global economy already reeling under the lingering economic challenges of the COVID-19 pandemic. Authors are Daniel Zaga, Economic Analysis Director, Deloitte Spanish LATAM Alejandro Mina, Manager, Deloitte Spanish Latin America Daniel Gonzalez Sesmas, Senior Manager, Deloitte Spanish Latin America Federico Di Yenno, Economic Analysis Manager, Deloitte LATAM and Alessandra Ortiz, Senior Economist, Deloitte Mexico. Following are excerpts, reprinted with permission, of a report published in Deloitte Insights in January 2023.
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