The timeline as of mid-2022
A likely recession and a debt crisis will build on coronavirus and supply chain challenges.
The newsletter is late today because I spoke this morning at the Analysts’ Roundtable event about global threats to supply chains. Within my presentation was this slide, which is a timeline of where we’ve been and where we’re going.
For the newsletter, let me add a few notes and a bit of context on this slide.
While I list it as a timeline, these aren’t distinct stages where one ends and another begins. Instead, things build on each other. The dates are also approximate and won’t hit everywhere at the exact same time.
Coronavirus is still around. It’s going to keep disrupting things, even if we all collectively insist on pretending we live in a “post-pandemic” world.
Supply chains, while better than they were six months ago, are still disrupted by Covid restrictions (particularly in China) and are still catching up to all the challenges they faced from the demand boom in 2021.
Inflation, while slowing down given policy responses and the likely coming recession, is still an issue for many households, particularly in emerging and frontier markets, even as economies slow.
Even if energy and mineral prices drop in the coming economic slowdown, the broken supply chains and harvest issues (exacerbated by Russia’s invasion of Ukraine and climate change) are likely to keep food prices high in the coming months.
For Latin America, this combination of factors building over time creates new challenges. In particular, economies with a focus around oil and mining (Mexico, Venezuela, Ecuador, Chile, Peru, Colombia) are not going to benefit from high commodity prices raising incomes and tax revenues in the coming months, but they will still get hit with high food prices.
A debt crisis is building globally. Beyond the question of “which countries will default?”, countries that don’t default still face higher interest rates on refinancing debt, tough debt payments that limit their ability to spend on social safety nets in other areas, and pressure to cut politically important subsidies and programs that could lead to greater instability and lower government approval by citizens. For example, I don’t think Chile or Colombia are anywhere near defaulting, but I do think both countries face pressure and much tougher budget choices as some of the other countries in the hemisphere default.
As the timeline suggests, I’m a pessimist for how the coming 18-24 months look in Latin America and around the globe. This will not be an easy environment for any government in the hemisphere to operate.