Western Hemisphere Regional Economic Outlook: Navigating Tighter Global Financial Conditions

IMF News, November 2, 2022

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Growth for Latin America and the Caribbean is expected to be 3.5 percent in 2022.
Growth is projected to decelerate to 1.7 percent in 2023.
The 2022 growth outturn (3.5 percent) represents an upward revision of half percentage point relative to the July projection.
The 2023 projection of 1.7 percent is 0.3 percentage points lower than forecasted in July.
Inflation in several countries reached a two-decade high of 10 percent in Brazil, Chile, Colombia, Mexico and Peru.

The region has been impacted by two distinct global shocks: the COVID-19 pandemic and the Russian invasion of Ukraine; a third shock—tightening global financial conditions—is now shaping the outlook.
After a sharp contraction in 2020, most economies in the region recovered strongly in 2021 and early 2022 due to the global recovery, normalization of service sectors, and favorable external conditions including high commodity prices.
Strong momentum early in 2022 contributed to the upward revision of the 2022 growth forecast.

Inflation pressures built up and became broad-based throughout the region.
Monetary authorities in the region responded swiftly by raising interest rates well ahead of other economies, helping to contain price pressures and keep long-term inflation expectations anchored.
Inflation remains high and is expected to recede only gradually.
Policy recommendation: Monetary policy should avoid easing prematurely and must stay the course to prevent the high cost of having to restore price stability later if inflation becomes entrenched.

Fiscal policy should focus on strengthening public finances while protecting the vulnerable from the inflation shock.
Fiscal support to mitigate the impact of inflation on the most vulnerable should be accompanied by compensating measures where fiscal space does not exist, and should support monetary authorities’ efforts to tame inflation.
With weak public finances in many countries and rising financing costs, strengthening fiscal frameworks—emphasizing inclusive policies that protect vulnerable households—will be key to credibly put public debt on a downward path while ensuring social stability.

Boosting medium-term growth requires raising productivity and good-quality public and private investment.
Policy priorities include:
- Strengthening human capital.
- Simplifying and modernizing labor regulations.
- Lifting barriers to firm entry and exit.

Press Release No. 22/364 — November 2, 2022 — International Monetary Fund