This year Latin America had to experience the “rebound effect”.

As 2020 was so hard for the world’s economies due to the effects of the covid-19 pandemic, the growth rates of this year about to end are misleading. The reason is that since the current Gross Domestic Product (GDP) is measured in relation to the previous year, it seems at first glance that Latin America has made a spectacular leap.

But the truth is that it is a “rebound effect” because the base of comparison is very low. So, looking ahead to next year, the projections of international organizations give us a slightly more “realistic” picture of how different countries are evolving.

The most widely used thermometer to assess the economic health of a country is the GDP, however, there are many others. For now, let’s take a look at the prospects for economic growth, inflation and risk rating of Latin American economies.

Economic growth

If it is exclusively about economic growth, the economies with the best prospects for next year are Panama, the Dominican Republic, El Salvador and Peru , according to the latest forecasts of the Economic Commission for Latin America (ECLAC).

The following table shows the list of countries that are included in the agency’s studies.

The outlook, however, may vary depending on “the uneven progress in the vaccination processes and the ability of the countries to reverse the structural problems behind the low growth trajectory that they exhibited before the pandemic,” says the agency in its “Economic Survey of Latin America and the Caribbean” published in October.

“Well positioned”

Among the largest economies, there are some like Chile and Colombia that are “reasonably well positioned to recover in 2022, even amid anxiety over the omicron variant,” Benjamin Gedan, deputy director of the Latin America Program at the center of Latin America, tells BBC Mundo. Wilson Center studios, based in Washington.

Compared to other countries in the region, Chile would be in good shape, says the researcher, because most of its population is fully vaccinated and more than half of Chileans have received a booster.

The Central Bank of the South American country projects growth of around 2% for next year, although the economy could expand faster amid growing demand for its copper and lithium production, Gedan said.

However, doubts persist about how the country will evolve during the mandate of the elected president, Gabriel Boric, and what will happen with the plebiscite on a new Constitution in the second half of next year. Colombia, on the other hand, is also in a position pretty good for 2022, adds the researcher, “despite the nervousness about his presidential elections” and the memories of a 2021 with social unrest.

Among the smaller countries, Panama is leading the list of growth projections for next year made by ECLAC.

“He seems to be recovering very well ,” says Gedan. With the recovery of world trade, the Panamanian economy should see a strong boost, while President Laurentino Cortizo’s ambitious infrastructure program may also contribute to the expansion. Still, ómicron could affect Panama’s important tourism industry, something that remains to be seen.

The wave of inflation

One of the headaches in the world and in Latin America is the rise in inflation this year. Although growth is recovering step by step in the region, the cost of living is also rising and many people claim that the salary is not enough to buy enough products. Most governments have tried to counteract the wave of inflation by raising interest rates, an issue that also affects consumers because credits become more expensive.

The increase in inflation has been driven, in part, by the increase in food prices , wrote Maximiliano Appendino, an economist at the Regional Studies Division of the Western Hemisphere Department of the International Monetary Fund, IMF.

There is a lot of uncertainty in the environment regarding commodity prices, bottlenecks in supply chains, and rising shipping costs, as well as the possibility of new variants appearing to exacerbate the covid pandemic. -19.

On the other hand, Appendino added, the region needs to balance an uncertain inflation outlook with employment , which “is still substantially below pre-pandemic levels.”

How is the risk rating

The US risk rating agency Moody’s Investors Service – as do Standard & Poor’s and Fitch Ratings – evaluates the solvency of a country to pay its financial obligations. It is considered, among many others, an important indicator to analyze the health of an economy.

On a descending scale, the best rating is Aaa and the lowest is C. The following list orders the countries from the best evaluated to the worst evaluated, according to Moody’s.

Low credit risk

• Chile (A1)

Moderate credit risk

• Mexico (Baa1)
• Peru (Baa1)
• Colombia (Baa2)
• Panama (Baa2)
• Uruguay (Baa2)

Questionable credit quality

• Paraguay (Ba1)
• Guatemala (Ba1)
• Brazil (Ba2)
• Dom. Rep. (Ba3)
• Honduras (B1)
• Costa Rica (B2)
• Bolivia (B2)
• Nicaragua (B3)
• El Salvador (Caa1)
• Ecuador (Caa3)
• Argentina (CA)
• Cuba (Ca)
• Venezuela (C)

Source: Moody’s (December, 2021).

A difficult 2022

“Latin America’s growth prospects for 2022 are bleak,” says Gedan. Not only because of the economic effects that covid-19 has left, but also because the region encountered the pandemic in a bad state. Next year comes with ” a worrying debt hangover and rising inflation ,” the researcher argues.

From the political level, cuts in the public budget could trigger new episodes of social unrest, as happened, for example, in Colombia in April 2021 in response to proposals for economic reforms, argues Gedan. And in this sense, political uncertainty in the main economies of Latin America “has limited the investment that the region needs to recover”.

This uncertainty is given by the evolution that may follow, for example, the new governments of Pedro Castillo in Peru and Gabriel Boric in Chile, and by the results of the 2022 presidential elections in countries such as Colombia and Brazil.

SOURCE: BBC NEWS