Latin America and the Caribbean's economy will grow 2.5 percent this year, but the war in Ukraine has increased uncertainty over its outlook and boosted prices, the International Monetary Fund said Tuesday in a new forecast.
The war following Russia's invasion of Ukraine "is shaking the global economy and raising uncertainty about the outlook for Latin America and the Caribbean," the IMF warned in a blog post, citing the significant risks facing development.
Although the multilateral lender expects Brazil's economy to grow 0.8 percent, Mexico's by two percent, Colombia's by 5.8 percent, Chile's by 1.5 percent, Peru's by three percent and Argentina's by four percent this year, those rates are "very significant reductions relative to their prior year’s double-digit rates."
By region, South America will grow 2.3 percent this year, the Fund said, with Central America, Panama and the Dominican Republic expecting 4.8 percent. For the Caribbean, the IMF distinguished between economies dependent on tourism, which were hard hit by the pandemic, with 3.2 percent, and the commodity exporters (Guyana, Suriname and Trinidad and Tobago) which will take the lion's share, with 20.2 percent.
"Even before the war, the region’s recovery from the growth-sapping pandemic was losing momentum," wrote the Fund's economists.
The impact is now being felt in higher food and energy prices, forcing countries to take measures "soften the blow on the most vulnerable and contain the risks of social unrest," the IMF said.
Several countries have moved to limit the impact on vulnerable groups in a host of ways, from "tax and import tariff reductions to price caps or social transfers."
About 40 per ent of countries have introduced new measures, mostly on the tax side, "with an estimated average fiscal cost equal to 0.3 percent of gross domestic product," analysed the Fund.
Providing recommendations, the IMF said that governments should support low-income households and allow "domestic prices to adjust to international prices."
In addition to inflation, other risks lie ahead, said the report, citing a possible escalation of the war in Ukraine and rising interest rates in the United States, which could fuel an outflow of capital from a region in need of investment.
The authors of the blog – economists Santiago Acosta-Ormaechea, Ilan Goldfajn and Jorge Roldós -– advocate protecting "spending on social programmes, health, education and public investment" while "implementing tax reforms."