2021-09-20-牛津经济研究院-LATAM_Five_themes_that_will_shape_the_region_s_outlook_in_2022_5页_266kb

Research Briefing Summary | Latin America 2022 Outlook

Core Content

This briefing outlines the key economic themes shaping Latin America's outlook in 2022, focusing on the challenges of recovery, fiscal policy, inflation, and debt sustainability.

Main Points

1. Unsynchronised and Uneven Recovery

• Economic Performance: Most Latin American economies have not yet recovered to pre-pandemic GDP levels from Q4 2019.
• Performance Leaders: Brazil and Chile have reached these levels but have struggled to maintain momentum.
• Recovery Drivers: The speed of vaccination rollout will be a key factor in determining the pace of economic reopening.
• Regional Disparities: Mexico, Colombia, Peru, and Argentina are expected to lag, while Brazil and Chile may face abrupt slowdowns due to fading policy support and rising uncertainty.

2. Back to a Low Growth Equilibrium

• Policy Withdrawal: All countries except Mexico will phase out pandemic-era fiscal support.
• Global Context: The global input shortages and pandemic-related disruptions will limit growth across the region.
• Historical Context: Even before the pandemic, Latin American economies were growing slowly.
• Long-Term Outlook: The region may struggle to catch up with advanced economies for another decade, leading to persistent inequality and poverty.

3. Withdrawal of Fiscal Support

• Fiscal Challenges: Fiscal consolidation will become a political priority as policy space is exhausted.
• Risk of Slippage: The combination of slowing economies and social pressure may lead to fiscal slippage, especially in Brazil and Colombia.
• Investor Confidence: Countries that previously had fiscal credibility (e.g., Chile, Peru, Mexico) now face reduced investor confidence.
• Populist Tendencies: Politicians may favor short-term fixes over structural reforms, risking long-term economic health.

4. The "r minus g" Problem

• Debt Sustainability: The gap between borrowing costs (r) and GDP growth (g) is a critical risk factor.
• Primary Surpluses: All countries will need to run primary fiscal surpluses, but this will be difficult as growth slows.
• Vulnerable Countries: Brazil, Colombia, and Mexico are most at risk due to high debt levels and low growth expectations.
• Institutional Risk: A deterioration in institutions and a global inflation surprise could exacerbate the "r minus g" problem, leading to a debt trap.

5. High Inflation is Not So Temporary

• Inflation Drivers: Five key factors are pushing up prices in Latin America: low base effects, operational costs, input shortages, pent-up demand, and imported inflation.
• Transitory Nature: Only the first two factors are expected to fade in 2022, while the others could persist.
• Central Bank Response: All central banks (except Colombia) are raising interest rates to control inflation expectations.
• Policy Outlook: Brazil is expected to raise rates significantly, while Chile and Peru may aim for neutral levels. Mexico and Colombia may follow a more moderate path.

Key Information

• Growth Expectations: Latin America is expected to return to low trend growth in 2022.
• Debt Levels: Brazil has the highest debt-to-GDP ratio at 82.4%, followed by Colombia (67.9%), Chile (37.8%), Peru (37.3%), and Mexico (51.3%).
• Inflation Targets: All inflation-targeting central banks in the region will miss their inflation targets in 2021 and 2022.
• Policy Risks: The risk of fiscal slippage and rising borrowing costs is high, especially in Brazil and Colombia.
• Social and Political Factors: Social unrest and political changes may complicate the withdrawal of fiscal support and the implementation of austerity measures.

Conclusion

Latin America faces a complex economic landscape in 2022, marked by uneven recovery, fiscal consolidation pressures, and the challenge of maintaining debt sustainability amid rising borrowing costs and inflation. The region's ability to navigate these issues will depend on effective policy management, institutional stability, and the successful implementation of structural reforms.