Better placed, but not immune

The past month has brought further signs that growth in Latin America has started to slow in response to the deepening crisis in the euro-zone, the turmoil in world markets and weaker demand from China. Admittedly, Mexican growth surprised on the upside in Q3. But this was due in large part to a surprisingly large pick-up in agricultural production, which is unlikely to be sustained. More ominously, growth in Chile – which as the region’s most open and most commodity dependent economy is often a bellwether for global demand – slowed to just 2.6% annualised in Q3. Meanwhile, Brazil looks to have expanded by just 0.1% q/q in the third quarter. Looking ahead, while Latin America suffers from few of the debt and deficit concerns plaguing the Western world, it is clear that the region is not immune from the effects of the various crises sweeping through the G7. At best, leading indicators point to much weaker growth in Q4 and in some cases – notably Brazil – it seems that output might contract in q/q terms. The scope for policy stimulus should cushion the slowdown, but we still expect regional growth to ease to a below-consensus 2.5% in 2012, from 4.0% this year.