Latin America


Q3 looking brighter

While the regional economic recovery stuttered in Q2, it appears to be gathering pace in Q3. New COVID-19 cases have dropped back, particularly in Chile and Uruguay suggesting that their rapid vaccination programmes are proving effective. Restrictions have been eased across Latin America which is reflected in the improvement in the latest high-frequency data. Mexico is the key exception to this trend. It is currently in the midst of a Delta-induced third wave, which provides a warning sign to other countries with similarly low vaccination coverage. But, for now, the positive developments in much of Latin America reinforce our view that the near-term economic outlook for the region is not as bad as many think.

27 July 2021

Not all doom and gloom

Virus outbreaks are easing in much of Latin America which should support activity in the near term. And while vaccination coverage is still weak in most of the region, suggesting there is still a clear risk of further virus waves, economies are becoming increasingly resilient on this front. We think that the pace of the regional recovery will beat most analysts’ expectations in the coming years. Further monetary tightening lies in store but, with headline inflation rates set to drop back in 2022, interest rates probably won’t rise as far as investors are currently pricing into financial markets. Meanwhile, political risks are likely to grow over the coming year, raising debt concerns and putting local financial assets under pressure.

19 July 2021

On the road to recovery

The outlook for Latin America is improving and we expect economic growth to accelerate over the next year. The latest political crisis to engulf Brazil has cast fresh doubts over the outlook there but the early signs suggest that this is unlikely to prevent the economy from recovering. Likewise, Mexico’s economy is holding up reasonably well despite continued uncertainty over relations with the US and we think growth will beat consensus expectations this year. Finally, while the Andean economies of Chile, Peru and Colombia have weakened since the start of this year, a combination of looser monetary policy and, in some cases, fiscal support, should help to revive growth over the second half of 2017. All told, we expect regional GDP to grow by 1.5% this year and 2.5% in 2018.

23 May 2017
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Brazil breathes sigh of relief as meat scandal subsides

The scandal over Brazil’s meat sector, which at one point appeared to threaten the country’s economic recovery, seems to have faded just as quickly as it escalated. The crisis exploded following the revelation earlier this month that the authorities had begun an investigation into allegations that up to 40 food processing companies had bribed government officials to approve the sale and export of soiled meat. In response, countries from China to Chile imposed bans on imports of Brazilian meat with the result that shipments fell by about a fifth last week. At one point, meat exports worth about $8bn annually (0.5% of GDP) were subject to various bans and restrictions. The good news is that most of these bans have now been lifted, helped in part by an intense lobbying effort by the government. The bad news is that the fact that a single scandal posed such a threat to the economy underlines just how fragile Brazil’s economic recovery will be. Meanwhile, with the meat scandal subsiding, investors have quickly turned their focus to the progress of pension reforms through Congress. Signs that the bill is struggling to get out of committee have taken some steam out of the rally in the real over the past week.

Growth to return in 2017

After two years of falling output, Latin America’s economy finally looks set to return to growth next year. Brazil and Argentina should exit recessions, while the downturns in Colombia and Chile are likely to bottom out. Investment should start to recover in most countries as business confidence returns. At the same time, weaker currencies will support non-commodity exports. However, the region’s recovery will be slow going. On the external front, economic growth in China – the largest export market for most countries – looks set to slow. Global commodity prices should grind higher but they will remain at low levels. On the domestic front, fiscal policy will tighten further in most places as governments continue the process of balance sheet repair. The good news is that falling inflation will give most central banks room to cut interest rates. The main exception is Mexico. While we don’t expect the election of Donald Trump to trigger a recession in Mexico, the drop in the peso will push up inflation and trigger further monetary tightening. All told, having contracted by 1.0% this year, we expect regional GDP to grow by 1.3% next year and 2.3% in 2018.

A limp recovery

The growing pile of cash held abroad by US firms, which has now reached more than $2trn, or 12% of GDP, is unlikely to provide much of a boost to the economy, not least because the prospects of that cash being repatriated are fairly low.


Treading water

Economic growth in Latin America slowed further in the first half of 2014 and we see little chance of a strong rebound over the coming quarters. The key props to strong growth in the past decade are crumbling. Rapid credit growth will have to cool, while the global commodities boom has ended. With policymakers shying away from the structural reforms that are needed to raise productivity and reinvigorate growth, the region will be left treading water for the foreseeable future. We have pencilled in average regional GDP growth of just 2.3% in 2014-16. Given that at least part of the slowdown is due to structural factors, weaker growth looks set to become entrenched meaning that interest rates will remain relatively low for a very long time.

Stuck in the slow lane

Latin America’s economy looks set to remain stuck in the slow lane over the next couple of years. The drivers of strong growth over the past decade – including rapid credit growth and strong global demand for the region’s commodities – are weakening. At the same time, policymakers have struggled to push through the new reforms that are needed to raise productivity and shift the region onto a more sustainable growth path. The net result is likely to be that the region continues to grow at rates of just 2-3% a year. What’s more, with economic weakness unlikely to be accompanied by a drop in inflation, there is little room for central banks to loosen policy in order to support growth. Indeed, in most countries, we expect interest rates to edge up (albeit gradually) over 2014-15. At a country level, we remain most upbeat on the prospects for Mexico. In contrast, we expect Brazil to continue to struggle, while growing strains in the balance of payments look set to push both Argentina and Venezuela into recession this year


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