The Economic Impact of the War in Ukraine on Latin America and the Caribbean

Despite a positive terms of trade windfall for commodity exporters, Latin America and the Caribbean (LAC) countries are likely to be negatively impacted by Russia’s invasion of Ukraine.

Greater global economic uncertainty is causing a flight to safe assets, changing the direction of capital flows and putting pressure on exchange rates.

Higher inflation is forcing central banks to raise policy rates, while governments provide new subsidies to offset the effects of higher food and energy prices.

A post-pandemic intelligent fiscal consolidation is necessary. Governments should gradually lift measures introduced during the pandemic to support consumption. Moderating the use of regressive energy subsidies –which have been significantly increased in response to high oil prices— is also advisable. Improving productivity and seizing “friendshoring” trade opportunities should be focal point of policymakers in the region.