Mastercard, in its yearly economic outlook, is predicting a deceleration in inflation across Latin America from 6.0 per cent in 2023 to 4.9 per cent year in 2024. It, however, forecasts that the economies of Central America and the Caribbean will be more vulnerable this year from the slowdown in the US economy due to weaker exports and lower remittances.

The annual report, which is produced by the Mastercard Economics Institute (MEI), collates information on a multitude of public and proprietary datasets, including aggregated and anonymised Mastercard sales activity as well as models that are intended to estimate economic activity.

According to the report, there are three “common themes” for the global economy this year, namely an empowered consumer, easing inflationary pressure, and a course correction for central banks.

The report, titled ‘Economic Outlook 2024’, states that the measures used by MEI assess the regional impacts across 45 markets, including forecasts for Latin America. However, the narrative differs across regions based on social and political tensions, geopolitical risks, cost of living, access to credit, debt sustainability, and currency depreciations.

“Next year, most of Latin America will be reaping the benefits of its tumultuous but persistent commitment to stabilising inflation,” a release from the MEI said.

This year, MEI forecasts a gross domestic product growth slowdown in key Latin American economies and a “smooth landing” for the geographic area as opposed to the hard landing that typically follows high-inflation episodes in the region.

Brazil and Chile will lead the region in this cycle. But it added that Colombia and Mexico will “stay behind for different reasons – sticky core and food inflation in Colombia and remarkable economic resilience in Mexico”.

In 2024, MEI expects rate cuts to spread through the region and to support households as they consolidate their debt. Consumer spending growth should moderate compared to 2023 but remain resilient on the back of strong labour markets. Additionally, sustained global demand for commodities remains key to economic performance, while the possibility of higher food prices will be a key risk factor.

Alternatively, the continued easing of monetary policy will help sustain consumer spend in interest-sensitive sectors, while income-sensitive sectors are likely to lag as households control their expenses, the release said.

“The good news is that labour markets will remain strong in the economies that have outperformed. In addition, labour markets will finally turn the corner in the region’s underperforming economies, with real wages expected to show modest but consistent growth,” it continued.

As Latin America pursues a smooth slowdown, the key downside risks are external. An economic slowdown abroad, especially in China and the US, is the greatest potential threat to Latin America’s economic performance in the year ahead.

A slowdown in China would hit the economies of South America particularly hard through a decline in demand for agricultural products and metals, it said. Meanwhile, Central America and the Caribbean are more vulnerable because of the US slowdown from weaker exports and lower remittances.

“While the global economy will feel more normal in 2024 than the prior three years, it is still an economy in the process of rebalancing. This means consumers and corporations will be mindful of how to prioritise their spending and investment in an environment of shifting relative price differentials and higher borrowing costs,” the release said.

It added that these macro dynamics are the “continued behavioural changes” by consumers in how and why they shop. In a global economy that is still fluctuating, this year empowered consumers will look to find their equilibrium by carefully balancing prices and priorities, it said.