The latest estimates from consensus for the main Latin American economies show a continent facing a lost decade. The region GDP growth has been downgraded yet again to a modest 1.1% for 2023, with rising inflation and weakening gross fixed investment. Considering that the region was already recovering at a slower pace than other emerging markets, the outlook is exceedingly worrying.

The poor growth and high inflation expectations are even worse when we consider that consensus estimates still consider a tailwind coming from rising commodity prices and more exports due to the China re-opening.

There are many mistakes in the G7 agreement to put a cap on Russian oil. The first one is that it does not hurt Russia at all. The agreed cap, at $60 a barrel, is higher than the current Urals price, above the five-year average of the quoted price and higher than Rosneft’s average netback price.

According to Reuters, “the G7 price cap will allow non-EU countries to continue importing seaborne Russian crude oil, but it will prohibit shipping, insurance, and re-insurance companies from handling cargoes of Russian crude around the globe, unless it is sold for less than the price cap”. This means that China will be able to purchase more Russian oil at a large discount while the Russian state-owned oil giant will continue to make a very healthy 16% return on average capital employed (ROACE) and more than 8.8 billion roubles in revenues, which means an EBITDA (earnings before interest, taxes, depreciation and amortization) that more than doubles its capex requirements.

Only 15 years ago, the European Union produced more natural gas than Russia exported, according to the EIA. Repeating past mistakes and maintaining a failed energetic interventionist policy would only worsen what is already a structural disaster.

The prohibitive cost of electricity and gas in Europe is not a result of market flaws, but of a completely unsustainable cost structure where consumers are forced to pay escalating taxes, a hidden CO2 tax, subsidies, and other rising regulatory costs. More than 60% of an average euro area country household bill is made up of taxes and regulated costs, according to Eurostat.

Brussels cannot turn water into wine, and, similarly, the European Union cannot “cap” the price of natural gas and oil. It is almost ironic, but European leaders are spending days debating whether to impose a cap on Russian oil that would be set above the current Urals price and significantly above the five-year average levels.

While many market participants are concerned about rate increases, they appear to be ignoring the largest risk: the potential for a massive liquidity drain in 2023.

Even though December is almost here, central banks’ balance sheets have hardly, if at all, decreased. Rather than real sales, a weaker currency and the price of the accumulated bonds account for the majority of the fall in the balance sheets of the major central banks.

In the context of governments deficits that are hardly declining and, in some cases, increasing, investors must take into account the danger of a significant reduction in the balance sheets of central banks. Both the quantitative tightening of central banks and the refinancing of government deficits, albeit at higher costs, will drain liquidity from the markets. This inevitably causes the global liquidity spectrum to contract far more than the headline amount.