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Latin America grows on separate lines: larger economies slow and Andean countries recover in 2024
Wednesday, July 10, 2024 - 18:30
Fuente: Agencia Andina y Reuters (Fotocomposición)

Citigroup's macroeconomic projections at the end of the first half of 2024 predict that Colombia will overcome its recession and Peru will maintain monetary stability, despite the persistence of its political crisis.

Once the first half of 2024 has passed, enough time has passed to draw conclusions about the performance of Latin American economies and predict initial projections for 2025. It is worth remembering that there are several factors at play: public policies, the price of natural resources or the decisions made by world powers.

These are the ingredients that make up the quarterly analysis of macroeconomic projections presented by Ernesto Revilla, Citigroup's chief economist for Latin America . First, there is a relatively optimistic outlook on the global outlook. In other words, important players such as the United States, the European Union (EU) and China will continue to experience economic growth, but at a lower level. Revilla defines this phenomenon as a “soft landing.”

Under this slogan, according to Citigroup, the US GDP would go from growing 2.5% in 2023 to 1.5% the following year. This drop in the growth curve does not imply a recession, but rather a normalization of the post-pandemic rise and the effect of high interest rates that are already beginning to be reflected in a “softening” of economic activity. Along similar lines, after experiencing a GDP increase of more than 1% in 2023, the European Union would only grow by 0.7% this year.

Meanwhile, Chinese GDP will record growth rates close to 5% in 2024 and the following year, it will decline to 4.6%. Apparently, the Asian dragon faces better figures than its Western rivals, but in reality, this is a modest balance compared to the average growth of 10% experienced in the last three decades.


On the other hand, Latin America will follow a similar trend: if by 2023, the region grew by 2.5%, in 2024, a slight decrease would be seen until reaching 2.2%. “The largest economies, particularly Brazil and Mexico, are the ones that are dragging this growth down, because these economies had a very good 2023, so they will grow less this year,” clarifies Revilla.

However, not all cases should be measured by the same yardstick. For example, Andean nations such as Peru, Chile and Colombia, which faced recession or economic stagnation in 2023, will show better results in the current year.

Now, all Latin American countries will be affected to a greater or lesser extent by an external risk: the decisions of the US Federal Reserve (Fed). To be specific, this entails the future of external interest rates. For its part, Citigroup predicts that the slowdown of the US economy in the second half of 2024 will be an important factor in the Fed's actions.

“The United States economy remained very resilient and, above all, with very significant strength in consumption. But the effect of high inflation and high interest rates has caused the consumption of goods to slow down,” says Revilla.

Although service consumption remains strong and is one of the pillars of the US economy, slower GDP growth has begun to take its toll on the labor market: in recent months, insurance applications have begun to grow of unemployment. If we add the fact that US inflation is approaching the Fed's target, the foundation is laid for the Reserve to propose an additional cut in interest rates. Something that would be beneficial for Latin America, according to Revilla.

“The market expects a little less than two Fed cuts in this second half of the year and we at Citi are more optimistic that more than that can be cut. We expect three cuts of 25 basis points in the second half of the year. If the Fed lowers three times, from September to December, 75 basis points to take the interest rate from 5.5 to 4.75, it is good news for our regional forecast,” he explains.

Finally, the prices of key raw materials such as gold and copper will continue an upward trend in the remaining period of 2024 and 2025. For its part, oil will experience a decreasing trend, but it will be a gradual fall, which would allow precautions to be taken crude oil producing countries.

“We see that commodity prices are going to remain at levels that will support the economies of Latin America, and we are not very concerned about them from an inflationary point of view,” notes Revilla.


Unlike 2023, Citigroup projects that political risk for markets will be lower by the end of this year. For example, in Colombia, although Gustavo Petro's government has promoted an ambitious program of structural reforms, his unpopularity and parliamentary opposition have stopped any attempt at fiscal imbalance.

Although the Colombian economy faced a “small technical recession” in 2023, which manifested itself in a weak growth of 0.6%, it is expected that 2024 will close with an increase of 1.5% and 2025, with 2.6%. . However, high prices still remain a pending challenge for the finances of the coffee-growing country.

"As inflation remains above 7%, this has caused the Bank of the Republic to be more careful in reducing its interest rates and therefore, we project that inflation will have a downward trajectory in the second half 2024,” says Revilla.

On the other hand, Citigroup exposes Peru as a unique case: there is a dichotomy between the country's economic and political trajectory. On the one hand, there is a stable currency, and on the other, a State headed by a very unpopular president, as well as a fragmented Congress determined to retain power until the 2026 elections. Even so, the economic projections are encouraging. .

“After the GDP contracted 0.6% the previous year, we now estimate growth in Peru of 2.4% for this year, which may rise to 2.9% in the next. Furthermore, we are seeing a recovery that is already beginning to be more evident in the data we have from the first quarter and what we can see from the second quarter,” says the Citigroup representative.

Although in reality, the most striking aspect of Peru's economic strength is its low inflation. A peak of 3.2% per year was reached in 2023, which would decrease to 2.4% in 2024. Revilla highlights that this is due to the independent management of the Peruvian Central Bank, which only reduces interest rates in a staggered and prudent manner. .

“There was a discussion among external investors about the comments of Julio Velarde, the president of the BCR of Peru, about how much the interest rate in Peru could be lower than that of the United States. And it seems to me that he has done well to correctly mention that he can reduce rates to some extent, but not excessively,” said the speaker.

When asked about the possibility that political instability, as well as the Peruvian Congress's willingness to co-opt institutions and increase public spending, threaten monetary stability, Revilla was optimistic.

"If we add the strength of the Central Bank with the macroeconomic fundamentals of Peru, which has an investment grade with a relatively low level of debt and good international reserves, the truth is that we do not see risks in the inflation forecast during the rest of the administration of President Boluarte, despite the political noise,” declared the Mexican economist for AméricaEconomía .

Of course, Revilla recognizes that politics has already “polluted” the Peruvian economy in certain aspects such as the loss of confidence to invest in the country. Subsequently, the Citigroup spokesperson praised the eventual inauguration of the Chancay Megaport in November 2024 as an opportunity for Peru to increase its economic activity in the short and medium term.


Sergio Herrera Deza