U.S. currency policy is facing severe challenges for Latin American countries

Xinhua News Agency, Mexico City, July 28 (International Observation) U.S. currency policy is facing severe challenges in Latin American countries.

Xinhua News Agency reporter Zhao Kai Wang Zhongyi

A series of data released recently shows that the major Latin American economies such as Brazil and Argentina have grown in the first half of this year, but the growth rate has slowed down significantly compared with the same period last year.

Analysts believe that under the influence of high inflation in Europe and the United States, tight monetary policies, especially the Fed's continuous radical interest rate hike effect, Latin American economies are facing severe challenges such as rising inflation, depreciation of local currency, and capital outflows. The economy will face large downward pressure next year.

Overall growth slow

Although the foreign trade performance of major Latin America, such as Brazil and Argentina, has been eye -catching, the growth prospects of these economies are not optimistic.

Paul Roberto Feldman, a professor at the School of Economics Management, Brazil, believes that the high unemployment rate, high inflation, and appreciation of the US dollar are the three main reasons to hinder the growth of Brazil's economic growth.

The Brazilian Foreign Trade Association has recently predicted that Brazil's total trade is expected to hit a new high this year. Argentina's exports in the first half of this year reached a record 44.377 billion US dollars, an increase of 25.5%year -on -year. Experts said that the exports of Brazil, Argentina and other countries are mostly agricultural products, but local agricultural automation is very high, and innovation in foreign trade cannot solve domestic employment problems.

Data show that in the first half of this year, Brazil's GDP (GDP) increased by 1%. The Ministry of Economic Affairs of the Brazil predicts that the country's economic growth will slow to 0.7%in the second half of the year. Market participants generally believe that due to the negative impact of temporary economic stimulus measures, 2023 will be a very difficult year for Brazil's economy.

The Argentine economy is facing challenges such as excessive foreign debt, severe inflation situation, and serious depreciation of the local currency. The International Monetary Fund predicts that Argentina's economy will increase by 4%this year, lower than the growth rate of 10.3%last year.

According to data released by the Bank of Chile in June, the country's economic activities have continued to slow down this year, and the annual economic growth is expected to grow by 1.5%to 2.25%. The growth rate in 2023 will grow zero or negative.

Spanish foreign banks have recently predicted that Mexico's economic growth rate is 2%this year, compared with the growth rate of 4.8%last year, and the expected growth expectations in 2023 will be reduced from 2.1%to 1.6%.

High inflation is the main cause

Latin American scholars and economic experts generally believe that current Latin American countries generally face impacts such as high inflation and the depreciation of the US dollar on the US dollar.

According to data from the Brazilian Geographical Bureau of Geographical Statistics, in the 12 months of June this year, Brazil ’s broad consumer price index rose 11.89%. According to data from the National Bureau of Statistics of Chile, the country's inflation rate in June was 12.5%, which was far higher than 3%set target. Argentina's cumulative inflation in the first half of the year was as high as 36.2%. Mexico's inflation rate reached 7.99%in June, the highest level since 2001.

Along with the high inflation, Latin America's national currency has devalued the US dollar against the US dollar. The exchange rate of the US dollar to Chile's peso exceeded 1 to 1,000 this month, a record high.

Lisaldo Gomez, President of the University of Valpalezo, Chile, believes that Chile's Peso has severely depreciated and has affected the price formation mechanism of the foreign exchange market.

Victor Saras, an economist at the University of St. Diego, said that people have previously believed that high global inflation is temporary, but the Federal Reserve's interest rate hike deepening the expectations of long -term inflation pressure.

U.S. currency policy becomes the main source of risk

The Federal Reserve has continuously raised interest rates in a row this year. The spillover effect spreads to the Latin American countries. Latin American countries have to take measures such as interest rate hikes. Since June, Brazil, Mexico, Argentina, Chile, Peru and other countries have raised great interest rates. Argentina's central bank raised the benchmark interest rate 300 basis points to 52%in June, and had raised interest rates 6 times in the first half of the year.

Mexican scholar Selhio Negrett believes that the Federal Reserve ’s interest rate hikes have a“ very strong ”impact on emerging market countries such as Mexico, and capital flows out of these emerging markets.

Herch Marchini, a professor of economics at the University of Buenos Aires, Argentina, said: On the one hand, the Federal Reserve ’s interest rate hikes will cause funds to accelerate to the United States. In order to suppress the outflow of capital, it is bound to follow the rate hike. It has a adverse impact on its domestic economic activities; on the other hand, interest rate hikes means that the debt burden of neighboring countries increases, affecting economic recovery and growth.

Manicini believes that the Fed's continuous interest rate hikes have been observed, but the effect of curbing domestic inflation in the United States is yet to be observed.

[Editor in charge: Wang Yan]

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