OECD: better financial conditions will boost some Latin American economies

The Organization for Economic Cooperation and Development (OECD), in its most recent report, indicated that the world economy will show a slowdown this year and that it will be reflected in some Latin American economies. For example, Brazil has begun cutting interest rates and Mexico is expected to follow that path, which could boost growth in the region’s two largest economies, El País reported.

The OECD expects Brazil to grow 1.8% this year and Mexico 2.5%. For both, this result would represent a slowdown compared to the 3.1% growth seen in 2023.

In its report, the international organization explained that the more relaxed global financial conditions and the expected start of reductions in policy rates, carried out by the central banks of advanced economies, improve the monetary policy space in emerging market economies, as they provide more flexibility to implement rate reductions. “However, differences in underlying economic developments are being reflected in increasingly divergent policy stances in larger economies,” he adds.

“Official interest rates are also being reduced in some Latin American countries, including Brazil, which were among the first to significantly tighten their policies in 2021 and where inflation has now fallen sharply towards the target. In others, such as India, Indonesia, Mexico and South Africa, policy easing has not yet begun, and inflation remains contained, but has not yet decreased substantially,” economists from the organization said, adding that there is room for some gradual easing. of policies over the next two years in most of these economies as disinflation continues.

Regarding Argentina, the OECD expects its production performance to worsen and foresees a contraction of -2.3% for 2024, -1% more than estimated in November derived from the austerity policies proposed by the president’s new government. Javier Milei. “High inflation and considerable fiscal tightening are projected to result in a drop in output in Argentina in 2024 before growth recovers in 2025, when reforms begin to take effect,” the report says.

In the 20 largest economies, inflation, on average, will be higher in 2024 than in 2023, due to a distortion due to high inflation in Argentina and Turkey, the OECD warned. The OECD expects average inflation in G20 countries to be 6.6% this year and 3.8% in 2025.

With information from El País.