China still the key risk for Lat Am

While many parts of the emerging and developed world are sweating over the potential fallout from a looming Greek exit from the Euro-zone, a deeper downturn in China remains the key external risk for Latin America. Fresh concerns over China’s outlook have surfaced in recent weeks following a decline in its equity market over the past month and further policy easing by the People’s Bank. For our part, we think that the bulk of the slowdown in China – and its impact on Latin America – has probably now happened. Following steep falls since 2011, prices of many industrial metals such as copper look set to rebound over the coming quarters, while others such as iron ore are unlikely to fall much further from here. A turnaround in industrial metals prices should give a timely boost to the region’s major metals exporters – particularly Chile, Peru and Brazil. More generally, a gradual increase in export earnings is one reason why we expect GDP growth in the region to pick up, albeit slowly, over the next year or so.