Alphacast Highlight: 10 charts that explain Latin America in 2022

By Maia Mindel (mmindel@alphacast.io)


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1. GDP continued recovering, but weaker conditions resulted in a slowdown

Most of Latin America's economies grew in 2022, a continuation from 2021 after the COVID pandemic caused the deepest economic recession in decades, if ever, for the region's economies. However, a combination of global tailwinds, mediocre fundamentals, and an exhaustion of the post-2020 bump meant that most of the region's economies saw slowing growth throughout 2022. The slowdown is posed to continue over the next five years, returning to the tepid growth that plagued the region over the 2010s.

2. High-frequency data shows worsening trend for 2023

Using a weekly economic activity tracker from the OECD, we can see that the region saw little improvement in 2022, and in fact worsened in the final quarter. Activity appears to be close to 2019 levels for all major economies, meaning that the boost to growth that the post-pandemic recovery provided to the region's main economies might be over. Consequently, modest fundamentals and global tailwinds might take over as the defining factor for 2023 performance.

3. The labor market recovered, but at uneven rates

Unemployment surged in 2020, as a result of the largest widespread economic contraction the region has seen since the Great Depression. However, this surge was moderated by a decline in participation by the unemployed, who were scared off job-seeking by the (expected) lack of interest from employers. Consequently, both trends have played opposite roles in the two subsequent years, with genuine reemployment and renewed interest and reentry by the unemployed playing off each other. Additionally, the deterioration of earnings due to inflation and slower growth and hiring have also played a role in the post-pandemic labor market.

4. Inflation rose to its highest level in decades

Inflation was the main global story of 2022, and Latin America was no exception. The region saw the highest price growth since the 80s and 90s, as a result of generous fiscal and monetary stimulus throughout the pandemic and its recovery, a surge in global commodity prices, and global price acceleration. Even though the timing, heights, and duration of the current inflationary episode varied greatly, the major economies of Latin America all had to face it.

5. Central Banks seem to maintain their grip over inflation expectations

With the increase in global inflation, and the particularly acute cases the region has seen, many feared that high price growth had come to stay, a particularly ominous portent for a region with a storied history of high and hyper inflation. Nonetheless, surveys of consumers appear to show that individuals expect heightened CPI prints to be temporary, with central bankers tamping down demand and global factors vanishing as well. A normalization of inflation (at least outside of Argentina) will pose a trial by fire for Latin America's monetary authotities.

6. Monetary conditions tightened in 2022

Given that inflation is a global phenomenon, and that monetary policy is its agreed-upon remedy, a global tightening cycle is no surprise. Interest rates have risen globally, with the world's leading economies having embarked on a series of hikes of unprecedented aggression. However, Latin American policymakers took a different route, by starting to raise rates earlier - in mid 2021, in fact, rather than early 2022. Rates have reached levels not seen in decades, and their impact on price growth and activity remain to be seen.

7. Real interest rates have risen to try and tame inflation, but with varying levels of success

Latin America's Central Banks embarked on an unprecedented campaign to tighten monetary conditions in 2022. Real interest rates fell during the early stages, as insufficiently high rates combined with high and growing inflation. However, both 3-month and 6-month rates improved by the end of the year, turning either more moderately negative or positive altogether. Effects on prices and the real economy remain to be seen.

8. Global conditions affected the trade balance, though not homogenously

Higher commodity prices, higher inflation, and a slowdown in economic activity all affected the trade balance and the balance of payments of Latin America's economies. Given how most of the region are exporters of food products (soybeans, corn, wheat) and net importers of energy, the ex-ante effect would have been hard to predict. Only Brazil saw a marked improvement of its trade position, while the rest of the region saw a deterioration.

9. Governments tightened their belts in 2022

After the unpredecented fiscal expansion of 2020, it was unclear whether a new era of largesse was about to begin. As in most of the world, governments began unwinding their fiscal expansions as soon as conditions improved, although at differing rates given the political sensitivity of fiscal adjustment. Adjustment was mostly complete for some of the region's main economies, with a swift end to pandemic-era support programs, while others have lagged behind. Mexico and Uruguay, the most "stingy" of the group, have not seen large changes.

10. Assets performed poorly, but unevenly, in 2022

Given worsening economic trends, higher risk aversion, and odds of a global slowdown or even a recession, it is no surprise that 2022 was not a good year for assets. Equities performed unevenly, with little growth for most of the year, and marked volatility. Meanwhile, bonds were uniformly rejected by the markets, with all nations exhibiting a loss in value and higher perceived risk by the end of the year.

Maia Mindel

Written by

Maia Mindel

Macroeconomic analyst at Alphacast. Following inflation, activity, and trade.

This repository compiles the contributions of the Alphacast team on various current topics in the global economy.

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