Banking turmoil threatens growth in Latin America – 03/20/2023 – Market

Latin America could register zero economic growth this year if the banking crisis in the United States and Europe “spreads to the whole world”, said on Sunday (19) the chief economist of the IDB (Inter-American Development Bank), Eric Parrado .

The official, who spoke at the organization’s annual conference in Panama City, explained that the IDB remains optimistic that in the region “we have the resilience to face these types of shocks.”

IDB President Ilan Goldfajn said on Wednesday (15) that Latin America has a “very resilient and well-managed” financial system.

Shares and currencies in the region fell on Wednesday as investors worried about the stability of Swiss bank Credit Suisse following the bankruptcy of Silicon Valley Bank.

If the banking crisis does not spread to the region, the IDB forecasts growth of 1% in 2023 and 1.9% in 2024, significantly lower than the better-than-expected 3.9% growth in 2022.

Parrado said the lower growth estimates are partly due to reduced world demand, higher raw material prices and high interest rates to curb inflation.

While average annual inflation in the region has started to ease, it reached 9.6% in July 2022, the highest mark since the 2008 global financial crisis, according to the IDB.

As central banks continue to maintain or tighten monetary policy, the IDB has advised countries to prioritize subsidies for the poorest sectors and encourage investment in infrastructure and formal employment, while controlling public debt ratios.