Economists have been beating the drum of imminent slowdown in LATAM during most of 2022, especially after inflation expectations ballooned with Russia’s invasion of Ukraine back in February, and later with Fed’s decision to significantly accelerate interest rate hikes in May. But according to the latest data made available by governments through June, tangible slowdowns are yet to be seen. All Tier 1 countries in the region outperformed economic growth expectations in Q1 and Q2, and if any, multinationals have been struggling not with lack of demand, but rather too much demand vis-à-vis inventory levels amid supply chain bottlenecks. This situation has allowed most multinationals to continue to implement price increases in 2022 without conceding market share, and created the illusion that LATAM might perhaps dodge the bullet of high inflation, rising credit costs, and investment paralysis that seems to be awaiting developed economies and other emerging markets.
Were economists completely wrong about LATAM? Clearly so in terms of getting the timing of slowdown right, but definitely not as it pertains to the slowdown per se. There are objective reasons to conclude that LATAM economies will slow down more markedly in the next few months, but forecasting the exact timing of economic slowdown has proved extremely complicated because of the myriad of countervailing factors driving growth in the region; especially how governments would react to worsening inflation dynamics, which is another way of saying that some countries have been kicking the can than the road. In our LATAM outlook for 2023, we have identified the five factors that explain the region’s outperformance in 2022, and all five factors will reverse course in 2023; these are: demand for LATAM exports, job creation, the availability of excess savings and cheap credit, and government stimulus. As a result, LATAM will grow by only 1.2% in 2023, down from 2.7% this year, and it is likely that Q3 and Q4 data will already show quarter-on-quarter contraction in some countries.
However, and as we explain in our Global Outlook for 2023, there are also reasons to believe that recessions in countries not directly affected by the war in Ukraine will be short and shallow, unlike past recessions in the past 20 years. Not only that, certain countries in LATAM have benefited from the current external environment – especially oil-exporting economies – and will continue to do so in 2023. Finally, the restructuring of global supply chains already underway since the US-China trade war presents a huge opportunity for Latin America; especially for Mexico, but also Brazil, Panama, or Costa Rica.
Winning companies in 2023 will get pricing right, invest ahead of economic rebounds during the second part or late 2023, and revisit their market prioritization strategy in light of new winners and losers in the region.
Worsening global growth conditions will expose LATAM’s strengths and vulnerabilities
Debt Sustainability vs Social Stability Matrix
To inform your strategic plan for 2023, and to support your internal alignment – upwards with corporate, and with your local teams in LATAM – we suggest reviewing our Latin America Outlook for 2023. This report will help you level-set key stakeholders in your organization around key plan assumptions regarding economic growth, inflation, FX, as well as risks and opportunities for your business in Latin America.
Download an Executive Summary of the Latin America Outlook for 2023
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