Slowdown, unemployment and inflation are some of the obstacles that Latin American countries will face on their post-pandemic recovery paths. The voice of Seguros SURA experts on Competitiveness.

2022 is a year that presents great challenges both for growth and job creation and for facing the social costs of the pandemic. In addition, the economic scenario will be impacted by the negative consequences of the war in Eastern Europe. This is what they say in dialogue with Make sure you live SURA Insurance Competitiveness experts, as well as other leading specialists and multilateral entities.

The numbers of these challenges are eloquent. In its Preliminary Overview of the Economies 2021 report, ECLAC projects that the Latin American and Caribbean region will slow its annual growth rate to 2.1%, after growing 6.2% on average in 2021This is happening in a context of asymmetries between developed and emerging countries, in addition to the way in which social, monetary, health and vaccination policies are implemented for recovery from the crisis caused by the pandemic.

Economist and tax specialist Fabián Medina agrees on this point and details that the transition from pandemic to endemic in most of Latin America It will be slow due to low vaccination levels. “With some exceptions, such as Argentina and Uruguay, this will lead to a slower economic recovery in those countries,” he explains in an interview with Make sure you live.

According to the Preliminary Balance 2021, estimates show that the advanced economies would grow 4.2% in 2022. These would be the only ones to resume this year the growth path expected before the pandemic. As for emerging economies, they will have a growth of 5.1% in 2022, but they would not recover the growth path expected before Covid-19 until 2025.

Unemployment, rising prices and capital flight

For 2022, ECLAC projects an unemployment rate of 11.5% for women -slightly lower than the 11.8% recorded in 2021, but higher than the 9,5% before the pandemic in 2019-, while for Men's unemployment would be 8.0% this year, almost the same as in 2021 (8.1%), but still well above the 6.8% in 2019.

Another point that the report develops and that is of concern in the region is the price increases for products and services. Inflationary pressures were recorded in most countries in the region in 2021, led by increases in food and energy prices (inflation averaged 7.1% in November, excluding Argentina, Haiti, Suriname and Venezuela) and are expected to persist in 2022. 

Central banks anticipate that Inflation levels will remain above the established target range, although they will tend to converge towards the end of 2022 or the beginning of 2023. Also the price of energy and food on international markets, as well as the evolution of the exchange rate, will be key points to explain the future dynamics of prices.

The monetary policy of the United States under Joe Biden will also have its counterpart in the region. According to investment bank Goldman Sachs, the US Federal Reserve will raise interest rates seven times in 2022, a move that would affect emerging markets.

In this framework, the International Monetary Fund (IMF)) warned that emerging economies should prepare for interest rate increases by the US Federal Reserve. The body predicted volatility in financial markets, aggressive capital outflows and depreciation of currencies abroad.

impact of war

Added to this situation are the consequences of the war in Ukraine. In this regard, Medina explains that “Both Russia and Ukraine are major global suppliers of gas and oil. and, by ceasing to supply nearly 40%, the world supply was affected, rising general prices and inflation”. At the same time, he does not believe that there could be a shortage of LNG.

In this regard, Andrés Rave, Director of Solutions for Suramericana de Seguros SURA Companies, maintains that "without a doubt the restrictions in the exchange and uncertainty These conflicts generate an increase in prices."

“Not only crude oil or LNG - he explains -, which have a more immediate impact on Europe, where more than 150,000 million M3 of natural gas was imported from Russia in 2021 (equivalent to 45% of EU gas imports according to international sources), but also a series of inputs from Russia and Ukraine, such as fertilizers and steel, among others.”

And he adds: “This is discounting the negative effect in our economies from exports to Russia, which, according to the economic complexity observatory, amounted to more than USD 8,500 billion in 2021.”

The Seguros SURA expert points out that “in general, Latin America is a net exporter of crude oil and gas. Brazil, Mexico, Venezuela and Colombia top the list. However, Mexico and Argentina are occasional importers of refined crude oil, gasoline and other derivatives. The European shortage may put Latin American demand in a second level for these more elaborate products.”

Andrés Rave clarifies that "although the increase in the price of commodities - crude oil, soybeans, among others - usually favors Latam, on the other hand, the increase in the price of fertilizers, steel and other more processed products will affect, even more, “inflation”. According to the expert,  “This will force central banks to raise their rates further, affecting the growth of our economies.”

For Fabián Medina, Argentina's agreement with the IMF will also have an impact on Mercosur, "lowering the pressure on the exchange rate for Argentine companies and appreciating the value of the peso due to the drop in the blue rate.”

Experts list other points that will mark the economy, not only in Latin America, but throughout the world: 

• La doubling of global inflationIn the United States, for example, it is estimated that it will reach 7% annually vs. 3% until 2020.
• Greater interference in the economic sphere clean developments or CDM, which is supported and promoted by the United Nations in terms of environmental protection.
• Rise in commodity prices worldwide. Most countries in the region are grain producers, except for Ecuador and Venezuela, which are natural oil producers.

However, the outlook for Latin America is complex, and political decisions must be encouraged to have a positive impact on society. The important thing is to adapt and be informed in order to make the best decisions. SURA Insurance It is the bridge that allows buyers, shops and businesses to anticipate possible everyday events.