Latin American growth fell to its slowest rate since 2009 in the first half of this year and, while some countries are likely to see a rebound over the coming quarters, we think that for most this marks the start of a new era of weaker growth. The tapering and eventual ending of asset purchases by the Fed is unlikely to be the major event for Latin America that many seem to expect. Instead, two other developments are likely to drag on regional growth. The first is weakness in China, which will weigh on Latin America’s commodity exports. The second is a turn in the local credit cycle. We are most concerned about Venezuela and Argentina, both of which are likely to fall into recession over the next couple of years. But Brazil’s economy will also continue to disappoint. At the other end of the spectrum, the outlook is brightest in Mexico, which stands to benefit most from the continued recovery in the US.
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