In 2022 Latin America will have the challenge of consolidating its economic recovery

The coronavirus pandemic began in the first quarter of 2020 and since then it has affected all aspects of human life, including the economic development of countries.

Therefore, in 2022 Latin America faces the challenge of consolidating its economy, currently in recovery, but with a minefield caused by inflation, social and political instability and the impact of a pandemic that is still uncontrolled.

To a greater or lesser degree, but always present, these three issues are transversal in all the major economies of the region, as well as the rise in the dollar and trade tensions, which add turbulence to a very complex panorama.

Juan Carlos Martínez, professor at IE Business School summarized the situation as follows: “The main challenge facing Latin America in 2022 is the consolidation of growth. Economic growth that has been important in 2021, above 6%, but that will be much lower in 2022 ″.

These are some of the particular challenges that the main Latin American economies will face.

Argentina

The main challenge for Argentina for 2022 will be to reach an agreement with the International Monetary Fund (IMF) to refinance debts for some 43,300 million dollars, an essential pact for the country to defer the heavy maturities that it must face from March and not be left again to the edge of default.

Without an agreement, Argentina’s biggest challenge will be to deal with a worsening of its already unbalanced macroeconomic variables, mainly the fiscal deficit, exchange rate tensions and high inflation, a gloomy outlook that would strongly condition the economic recovery process that began in 2021, after three years of severe recession.

Brazil

Brazil has all the ingredients to complicate its economic reactivation, with all that that implies for the region as a whole.

It has a stagflation scenario, with inflation and unemployment in double digits, and enormous political uncertainty in 2022 that will be marked by polarized presidential, legislative and regional elections.

Thus, the projections for 2022 are for weak growth (0.5%), weighed down by fragile macroeconomic data, rising interest rates, the dollar through the roof and investors’ misgivings about the more than likely paralysis of the economy. reform agenda in Congress during the electoral campaign.

Colombia

Colombia will have to maintain in 2022 the good economic reactivation rhythm that caused it to grow in 2021 close to 10%, in a context marked by high inflation, unemployment that does not recover pre-COVID levels and electoral appointments.

By 2022, the Organization for Economic Cooperation and Development (OECD) projects an expansion of the economy of 5.5%, similar to that forecast by the financial sector.

Inflation, which at the end of November stood at 5.26%, one of the highest in recent years, is the enemy to beat for the authorities of the country, and thus the Bank of the Republic began already in September a gradual rise in interest rates that led him to raise them by half a point last Friday to 3%.

Another challenge is unemployment, which remains above double digits and has not yet returned to pre-pandemic levels.

Added to this is a political context marked by the presidential elections scheduled for May, with a second round in June.

Chile

After suffering the largest economic setback in four decades in 2020, the Chilean economy will end 2021 with a rise of between 10.5% and 11.5%, according to estimates by the Central Bank, supported by international organizations such as the OECD.

However, for 2022 the scenario is expected to be much more difficult, with growth of around 2% that will continue until 2023, according to the OECD, as fiscal support for aid in the pandemic is reduced and savings run out and liquidity accumulated by citizens.

From the outset, Chile will have to address the overheating of the economy that raised inflation in November to 6.7%, the highest since the 2008 financial crisis and well above the Central Bank’s target range of between 2% and 4 %.

A particular Chilean feature is the uncertainty about its pension system, which has been undercapitalized after the outflow of more than 50,000 million dollars in withdrawals authorized by the authorities to tackle the Covid-19 crisis.

This issue will be the subject of debate both with regard to the drafting of the new Constitution and the policies of the new government of the leftist Gabriel Boric, winner of the presidential elections and who will assume power in March 2022.

This constituent process that is being carried out by Chile will predictably culminate in 2022 with a proposal for a new Magna Carta, another question that will weigh on the Chilean economy.

The “extreme” and “historical” inequality of the country, the origin of the social protests of 2019, may once again generate a citizen outbreak depending on the development of the constitutional discussion and the practices of the new Executive.

Mexico

Mexico expects to grow around 6% in 2021, driven by consumption and by the renewed Agreement between Mexico, the United States and Canada (T-MEC), in force since the middle of last year.

But factors such as high inflation – which will close this year over 8% – and initiatives such as the energy reform, which seeks to strengthen the state power company to the detriment of private ones, have generated uncertainty among businessmen, who fear that it will affect investments.

But Mexican concerns are more about the trade issue and the disturbances in global flows, which, for example, affect its important automotive industry.

Peru

Peru’s challenges are also very great and affect almost every aspect of its economy, with the notable nuance of political instability that can derail initially promising prospects.

Growth projections are in a healthy range of between 8.5 and 12.7% and inflation alone, at highs for decades (5.83% in November) almost double the estimated target range of 3%, it is a visible and obvious macroeconomic problem.

However, the tension and political uncertainties surrounding the government of the leftist Pedro Castillo will mark the passage of next year.

Congress, the fiefdom of those who did not accept the electoral victory of the president, is determined to achieve his dismissal, in an environment where the business sector and the economic elite have not received the president’s diffuse economic proposals at all.

The specter of nationalizing economic sectors still has not been exorcised, and that will weigh in 2022.

In addition, Castillo will have to deal with the serious structural problems in Peru, such as health, education and informality, which were left naked with the onslaught of COVID-19. (I)