Dragged down by weaker global economy

The next 12 months are shaping up to be the most challenging since the 2008-09 global financial crisis for Latin America. A combination of weaker external demand, falling commodity prices and tighter local credit conditions means that regional growth will probably slow from 4.5% in 2011 to around 3.0% this year and to 2.5% in 2013 – although there is a considerable risk that a sudden deterioration in the global backdrop causes a much sharper downturn. At a country level, Peru and Mexico will be among the better performers, while Argentina looks set for a painful recession. Currency and equity markets are likely to struggle for the remainder of this year and much of 2013, before rallying in 2014. Meanwhile, local currency bond yields should remain at historically low levels.