Five Factors That Will Shape The Finances Of The Region
The monetary policy decisions of the Central Banks will play an important role
By 2022, the economies of Latin America continue on their path of economic recovery, after two years of the pandemic. However, this year the challenges of recovery depend on factors such as control of inflation, supply of raw materials, monetary policies, among others.
James Hernández, president and co-founder of Trust Corporate, assured that after a complex year for governments, companies, and their workers as a result of the pandemic and its impact on the economy, the challenges for leaders, local authorities, and the business sector of The region should focus on their ability to articulate effective measures and incentives to promote productivity, drive economic reactivation and job creation.
The World Bank estimates that the growth of the Latin American economy will slow to 2.9%. Much of the region will take a long time to fully recover and return to pre-pandemic production levels.
In particular, Hernández describes seven factors that will shape economies this year, which in turn will dictate how much the country will grow during this recovery period.
1. Interest rates. The central banks of the world have adopted expansionary economic policies during 2020 and 2021 but for this new year this trend may be reversed, so we will see an increase in interest rates, which means that the cost of credits will be higher.
“Factors such as the one presented in the United States, where last October there was year-on-year inflation of 6.2%, the highest in the last 30 years, will directly affect the region’s economy. The countries that could be most affected are Argentina, Brazil, Colombia, Chile, Mexico, and Peru”, comments Hernández.
2. Dollar and the devaluation of local currencies: The currencies of the largest economies in Latin America suffered sharp falls against the dollar last year, due to uncertainty and changes in political decisions.
3. Cryptocurrencies: There are currently more than 16,701 types of digital currencies. The Latin American countries with the highest activity in these currencies, according to the statistics platform Coin Dance, are Colombia with 45% of the region; Peru (13%); Chile (12%); Mexico (11%), and Brazil (11%).
“These types of assets are here to stay, and despite their instability, the trend indicates that they will be increasingly common and governments will join in their regulation,” explains Hernández.
4. Increase in oil demand: According to the International Energy Agency (IEA), world oil production is expected to reach 99.5 million barrels per day this year, a figure that will exceed the levels presented before the arrival of COVID-19.
This derives from the scarcity in supply and the high price that natural gas and coal have been presenting. The increase in the value of energy and the rise in crude oil will cause a rise in the gallon of gasoline, which together with the increase in petroleum derivatives, will affect the prices of the supply chain and consumption of people for this anus.
5. Financial inclusion: According to the Organization for Economic Cooperation and Development (OECD), social distancing measures promoted the process of digitizing transactions, by encouraging the use of non-face-to-face financial services and channels.
“During this year the global economy will be exposed to different factors that should motivate people to be prepared to a greater or lesser extent for its effects,” Hernández concluded.