The global economic earthquake resulting from the war in Ukraine will negatively impact growth in Latin America over the next three years, according to Mario Cimoli, interim executive secretary of the Economic Commission for Latin America and the Caribbean (ECLAC). Since the coronavirus health crisis, production chains have changed. “The production model has changed and we don’t know the effects it will have. I think it will have more persistent effects on inflation than people imagine,” Cimoli assured this Monday at the offices of the United Nations regional body, located in Santiago.
The consequences of the war in Ukraine, especially the increase in energy and food prices, will raise poverty in Latin America and the Caribbean to 33.7% and extreme poverty 14.9% this year, which translates into an increase of 1.6% and 1.1% respectively compared to 2021, according to the economic report published this Monday by ECLAC. “The region’s growth rate is going to be biased downwards and with inflation that must be controlled. When the interest rate is increased, the investments decrease and this produces a negative effect. That is why we believe that the next two or three years we will have growth that will be there, suffering”, Cimoli pointed out. ECLAC recommends strengthening public revenues to expand fiscal space as a central element for development.
At the end of 2021, annual inflation in the region reached 6.6%, a figure that climbed to 8.1% in April this year. The central banks, which have raised interest rates to face the complex economic scenario, anticipate that the high cost of living will continue to rise in the remainder of 2022. Daniel Titelman, head of the Economic Development division, has assured in a press conference on the report that this process is very complex because it has “a series of effects that came from before Ukraine. It reflects an amount of supply that has pushed up food and fuel prices. To which must be added a very complex geopolitical context”, such as the economic tensions between the United States and China.
“The rise in fossil fuel prices creates an opportunity for the development of clean energy in the region,” said Jeannete Sánchez, director of the Natural Resources Division. To take advantage of this window “it is very important that the region achieve agreements and coordination for all the ecosystems that are required: infrastructure, regulations and technological development.”
The report published this morning reveals that, after the economic expansion of 2021 (6.3%), the region will reach an average annual growth of 1.8% this year, a figure that places it in the slow pattern of growth registered between 2014 and 2019. The difficult panorama “is a set of more than a decade of accumulated crises, such as the international financial crisis, the economic tensions between the United States and China, and the pandemic,” Cimoli said at a press conference in which representatives of ECLAC detailed the findings made by the organization.
The region’s goods exports will be hit significantly this year, according to the report, due to rising commodity prices, rising transportation costs and disruptions to international supply chains. In December 2021, ECLAC projected for this year an increase of 10% in the value of regional exports of goods and 9% in the value of imports. However, the increase in several of the main commercialization products has readjusted the projection to a 23% expansion of both exports and imports by 2022.
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