For the remainder of 2022, the economies of Central America and the Dominican Republic face the challenge of maintaining a monetary policy that contains inflationary pressures and increased risk of exchange rate volatility, but which at the same time does not slow down economic growth. shows an analysis by the Economic Commission for Latin America and the Caribbean (ECLAC).
The economic study published this week shows that, for this reason, it is essential to achieve adequate coordination and complementarity between fiscal, monetary and macroprudential exchange rate policies, and from them with sectoral policies, articulating the instruments with which each of the economies of the region has.
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In 2021, the gross domestic product (GDP) of the countries of Central America and the Dominican Republic (CARD) reported an average real growth rate of 10.8%, the highest in several decades, after the deep contraction of 7.4% recorded in in 2020. as a result of the measures taken to cope with the Covid-19 pandemic.
ECLAC estimates that in 2022 the CARD economies will have a weighted growth of 4.5%, slightly lower than the 4.9% predicted at the beginning of the year, mainly due to the restrictive monetary policies implemented to curb inflation, higher growth low of the United States. , which is its main trading partner and the continuation of high prices of raw materials, which will affect the terms of trade.
Although CARD’s average growth would be lower than that recorded in 2021, it would be well above the Latin American and Caribbean average (2.7%). According to forecasts for the end of the year, Panama would again have the highest growth rate (7.4%) and the lowest would be recorded in El Salvador.
PREDICTION OF MONETARY POLICY
The international economic outlook presents various challenges in the second half of 2022. CARD countries have the challenge of maintaining economic dynamism in an international context with higher inflation, weakening of their trading partners, tighter financing conditions due to increased interest global and domestic. rates, as well as growing uncertainty in the face of greater geopolitical tensions between China and the United States, following the North American country’s rapprochement with the Republic of China (Taiwan) and the continuation of the war in Ukraine.
The central government fiscal deficit as a percentage of GDP registered a decrease in all CARD countries, from 6.7% on average in 2020 to 3.8% in 2021.
This evolution was the result of an increase in income and a decrease in total expenditure. Average public debt decreased from 59.6% of GDP in 2020 to 58.0% in 2021.
Until 2022, the gradual strengthening of public finances is expected to continue in most countries of the subregion. Inflationary pressures, driven to a large extent by rising international commodity prices, led to increases in benchmark interest rates in most CARD countries.
Although these rates remained unchanged for most of 2021, they were subsequently increased in all countries of the subregion, with the exception of Honduras, which has not changed its monetary policy rate (MPR) since November 2020. when it decreased by 75 basis points, up to 3.00%.
In addition to the adjustments in the reference rates, other conventional and non-conventional measures have been implemented to cope with inflation. The current account balance of the balance of payments of the countries of the region recorded an average deficit equal to 1.9% of GDP in 2021, as opposed to a surplus of 1.3% of GDP in 2020.
IN MATTERS OF TRADE
The apparent increase in imports, greater than that of exports, resulted in the return to the historical trend of trade deficit that has characterized the sub-region.
In 2021, exports of goods from CARD countries reported an annual increase of 28.7%, while imports of goods increased by 40.5%.
The favorable trend is expected to continue in 2022, although at a more moderate pace, due to restrictions on the supply of industrial inputs and the intensification of international geopolitical conflicts.
In 2021, the average year-on-year (December-December) inflation of the CARD countries stood at 5.2%, 2.8 percentage points above that recorded in 2020 (2.4%).
Inflationary pressures have increased in 2022, in a context of geopolitical tensions caused by the war in Ukraine and a significant increase in international prices of primary commodities, which led to year-on-year inflation in CARD countries’ average in July. was 8.9%.
With information from Bloomberg Línea
