SANTIAGO, Chile, CMC – The Economic Commission for Latin America and the Caribbean (ECLAC) has warned that the economic slowdown in the region is deepening, with the economies facing “a complex juncture in 2022 due to the war between Russia and Ukraine, which ushers in a new source of uncertainty for the world economy.”

ECLAC said this is negatively affecting global growth, now estimated at 3.3 per cent, a percentage point below original projections before the hostilities began.

“At the regional level, lower expected growth will be accompanied by higher inflation and slow employment recovery,” warned ECLAC in its new estimates, predicting average growth of 1.8 per cent for the region in this context, “where the conflict in Ukraine has heightened inflation, increasing financial volatility and costs”.

ECLAC said the economies of South America will grow by 1.5 per cent, Central America and Mexico by 2.3 per cent, while 4.7 per cent growth is expected for the Caribbean economies, excluding Guyana.

The new figures were announced by ECLAC’s acting Executive Secretary, Mario Cimoli, to the ambassadors for the Group of Countries of Latin America and the Caribbean during a meeting at United Nations headquarters in New York.

According to ECLAC, the conflict in Ukraine will also negatively affect world trade dynamics, causing a decrease in foreign demand in Latin America and the Caribbean.

ECLAC said the region’s main trade partners – the United States, China and the European Union (EU) – will see lower growth rates than those expected before the conflict began.

In the case of the US, ECLAC said growth will be 2.8 per cent, 1.2 percentage points lower than previous projections.

Projected growth for China is at 5 per cent, 0.7 percentage points less than before the hostilities, and for the EU, growth of 2.8 per cent is expected, 1.4 percentage points lower than pre-conflict projections, ECLAC said.

It said the war in Ukraine has also caused an increase in commodity prices, mainly in fossil fuels, some metals, food and fertilisers.

ECLAC said this price increase is in addition to higher costs observed due to disruptions in supply chains and exacerbated interruptions in maritime transport.

“These price hikes have given impetus to world inflation rates, in some countries reaching historic highs in 2022. In the face of the persistent and increasing inflation, higher interest rates in developed countries can be expected.”

The United Nations regional commission said that monetary adjustments in the countries of the North have “accentuated the tightening of global financial conditions witnessed in recent months, causing greater volatility in financial markets.

“Alongside the increase in global aversion to risk resulting from the conflict in Ukraine, this has jeopardised capital flows to emerging markets,” it said.

“These trends may be accentuated in the coming months, especially if inflationary pressure persists in developed economies and the central banks in these economies deepen contractive monetary policies, including rate hikes and the reversal of monetary stimuli (asset purchases).”

As in the rest of the world, ECLAC said inflationary dynamics have accelerated in Latin America and the Caribbean.

As of March this year, ECLAC said regional inflation is estimated at 7.5 per cent, adding that many central banks in the region anticipate sustained high inflation for the rest of the year, “given the greater uncertainty abroad in light of the war in Ukraine, especially in higher international energy and food prices and disruptions in global supply chains, as well as persistent high transportation costs.”

In response to higher inflation, ECLAC said monetary policy in central banks in the region has become more restrictive, and that the majority have significantly raised interest rates, “which in most cases have reached levels similar to those observed in 2017.”

“Retreating fiscal momentum is expected to accelerate in 2022, in step with the evolution of macroeconomic conditions and increased financing costs,” ECLAC said.

“Public expenditure will contract, reinforcing the reduction observed in 2021 and reducing fiscal policy contributions to growth.

“Although labour markets are showing signs of recovery, this has been slow and incomplete. The pace of job creation in 2022 is expected to decline along with the slowdown projected for growth in the region. The combined factors of greater labour participation and lower job creation will drive higher unemployment rates this year,” ECLAC added.