Mexico City, 28 Jul (Xinhua) -- The US Monetary Policy Is At Work The economies of Latin American countries are facing severe challenges
Xinhua News Agency reporter Zhao Kai wang Zhongyi
A series of recent data show that the economies of major Latin American economies such as Brazil and Argentina achieved economic growth in the first half of this year, but the growth rate slowed down significantly compared with the same period last year.
Analysts believe that under the influence of high inflation and tightening monetary policy in major european and American economies, especially the spillover effect of the Federal Reserve's continuous aggressive interest rate hike, the major economies in Latin America are facing severe challenges such as rising inflation, local currency depreciation, and capital outflows, and the economy in the second half of this year and next year is facing greater downward pressure.
Overall growth slowed
Although the foreign trade performance of major Latin American economies such as Brazil and Argentina has been eye-catching this year, the growth prospects of these economies are difficult to be optimistic.
Paulo Roberto Feldman, a professor at the School of Economics and Management at the University of São Paulo in Brazil, believes that high unemployment, high inflation and the appreciation of the us dollar are the three main reasons hindering Brazil's economic growth.
This is a march 4 shoot on the streets of Rio de Janeiro, Brazil. (Photo by Xinhua news agency reporter Wang Tiancong)
The Brazilian Institute of Foreign Trade recently predicted that Brazil's total trade is expected to reach a new high this year. Argentina's exports in the first half of this year reached a record $44.377 billion, up 25.5% year-on-year. Experts said that Brazil, Argentina and other countries export mostly agricultural products, but the local agricultural automation is very high, and the new high level of foreign trade cannot solve the problem of domestic employment.
The data shows that in the first half of this year, Brazil's gross domestic product (GDP) grew by 1%. Brazil's ministry of economy forecasts that the country's economic growth will slow to 0.7% in the second half of the year. Market participants generally believe that 2023 will be a very difficult year for the Brazilian economy due to the gradual emergence of the negative impact of temporary economic stimulus measures.
The Argentine economy is facing challenges such as excessive external debt, severe inflation and severe depreciation of the local currency. The International Monetary Fund predicts Argentina's economy will grow by 4 percent this year, down from 10.3 percent last year.
Data released by Chile's central bank in June showed that the country's economic activity has continued to slow this year, with annual economic growth expected to grow by 1.5% to 2.25%, with zero or negative growth in 2023.
Spain's Foreign Bank recently forecasts that Mexico's economy will grow at 2 percent this year, slowing from last year's 4.8 percent growth rate and lowering its 2023 growth forecast from 2.1 percent to 1.6 percent.
High inflation is the main cause
Latin American scholars and economic experts generally believe that Latin American countries are generally facing high inflation and the depreciation of their currencies against the US dollar.
According to the Brazilian Institute of Geostatistics, in the 12 months to June this year, Brazil's national generalized consumer price index rose by 11.89%. Data from Chile's National Statistical Office showed the country's inflation rate was 12.5 percent in June, well above the 3 percent target. Argentina's cumulative inflation rate in the first half of the year was as high as 36.2%. Inflation in Mexico reached 7.99 percent in June, the highest level since 2001.
High inflation has been accompanied by a severe depreciation of the currencies of many Latin American countries against the US dollar. The dollar's exchange rate against the Chilean peso broke through 1-1,000 at one point this month, a record high.
Pedestrians walk past the Central Bank of Chile Building in Santiago, Chile, on June 16, 2020. (Xinhua News Agency, photo by Jorge Villegas)
Lisaldo Gomez, dean of the International Business School of the University of Valparaiso in Chile, believes that the severe depreciation of the Chilean peso has affected the price formation mechanism of the foreign exchange market.
Victor Salas, an economist at the University of Santiago in Chile, said that previously high global inflation was thought to be temporary, but the Fed's interest rate hike deepened expectations of long-term inflationary pressures.
US monetary policy has become the main source of risk
The Fed has raised interest rates sharply since the beginning of this year, and the spillover effect has affected Latin American countries, and Latin American countries have had to take measures such as interest rate hikes. Since June, Brazil, Mexico, Argentina, Chile, Peru and other countries have raised interest rates sharply. Argentina's central bank raised its benchmark rate by 300 basis points to 52 percent in June, raising rates six times in the first half of the year.
On July 24, on the Avenue de la Reforma in Mexico City, mexico' capital, people walk past an art cow work. (Photo by Xinhua News Agency reporter Xin Yuewei)
Mexican scholar Sergio Negret believes that the impact of the Fed's interest rate hikes on Emerging Markets in Latin America such as Mexico is "very strong", and capital has flowed out of these emerging markets in large quantities.
Jorge Maccini, a professor of economics at the University of Buenos Aires in Argentina, said: On the one hand, the Fed's interest rate hike will lead to an accelerated flow of funds from neighboring countries to the United States, and neighboring countries are bound to follow the interest rate hike in order to curb capital outflows, which will have a negative impact on their domestic economic activities; On the other hand, interest rate hikes mean that the debt burden of neighboring countries increases, affecting economic recovery and growth.
Maccini believes that the effect of the Fed's successive sharp interest rate hikes to curb domestic inflation in the United States remains to be seen, but it is certain that the US monetary policy disregards the interests of other countries, and the recovery prospects of neighboring countries and even the world economy will be adversely affected.