LatAm Investor
How long can Latin America resist higher inflation and interest rates?
So far this year Latin America's economies have proved surprisingly resilient. Pollyanna De Lima, from S&P Global crunches the latest data and forecasts to explore the economic outlook for the region...
Overview
Latin American nations displayed considerable economic resilience during the second quarter of 2022, according to S&P Global’s PMI data, despite significant global headwinds. The outlook remains cloudy, however, as the war in Ukraine and sanctions imposed on Russia continue to exacerbate price pressures, thereby underpinning monetary policy tightening. Other challenges include ongoing disruptions to supply chains and political uncertainty, while the cost-of-living crisis and rising interest rates are expected to restrict consumption and investment.
In the opening quarter of the year, gross domestic product in Brazil, Colombia and Mexico all expanded by 1.0% from the preceding period, with only Mexico having failed to see a return to pre-pandemic levels. Since then, our timelier indicator — the Purchasing Managers’ Index (PMI) — strengthened and thereby signalled a more robust performance for the second quarter.
Despite a challenging global economic environment, and in line with stronger PMI results for Q2, our full-year forecasts for 2022 have been revised higher. GDP growth is expected to hit 6.2% in Colombia and 1.5% in both Brazil and Mexico. Included in the forecast assumptions are expectations of a slowdown in growth towards the end of the year, as higher borrowing costs and surging inflation dampen consumption and investment. On the monetary policy front, we anticipate year-end policy rates of 13.5%, 8.5% and 9.5% in Brazil, Colombia and Mexico respectively.
