Taking stock of the recovery in Latin America - Capital Economics
Latin America Economics

Taking stock of the recovery in Latin America

Latin America Economics Update
Written by Quinn Markwith

The latest surveys and high-frequency data suggest that Latin America’s economic recovery finally started to firm up in June. But it is still lagging other EM regions – and Chile’s recovery is yet to get going.

  • The latest surveys and high-frequency data suggest that Latin America’s economic recovery finally started to firm up in June. But it is still lagging other EM regions – and Chile’s recovery is yet to get going.
  • After a raft of disappointing economic news, recently released economic surveys for June were a pleasant surprise. The manufacturing PMIs for both Brazil and Colombia jumped sharply, as did the Brazilian FGV confidence indicators. And while Mexico’s manufacturing PMI only edged up, the IMEF surveys, which have a better relationship with the hard activity data, improved more markedly. Much of the improvement can be explained by the gradual easing of lockdowns last month.
  • The surveys generally point to smaller year-on-year falls in countries’ GDP in June than in April and May (See Charts 1 and 2 for the cases of Brazil and Mexico.) It appears that Brazil’s economy is suffering a little less than Mexico’s. One possible explanation is that fiscal support has been much larger in the former.
  • That is consistent with our Covid Recovery Trackers, which show that activity is currently closest to its pre-virus level in Brazil. (See Chart 3.) Mexico is a close second in the region. Note that the relative resilience of these economies is not due to the strength of their recoveries, rather that the peak-to-trough falls in activity were shallower than in the Andes and Argentina
  • Meanwhile, Chile’s economy has not even started to rebound. The government has tightened lockdown measures, causing economic output – proxied by the central bank’s IMACEC indicator – to contract by 3.4% m/m in May after an 8.3% monthly fall in April (in seasonally adjusted terms). And our Covid Recovery Tracker suggests that activity remained subdued there in June. (See Chart 3 again.)
  • Stepping back, the region’s recovery looks weak compared with other EMs. Indeed, our Recovery Trackers suggest that activity is improving at a slower pace than elsewhere in the emerging world. (See Chart 4.) That reflects the continued rapid spread of the virus and a slower lifting of containment measures. And even if lockdown measures were to be eased further, with the virus continuing to spread, the region’s economic outlook will still be much worse than in places which have already controlled the virus.

Chart 1: Brazil FGV Expectations Indices & GDP

Chart 2: Mexico IMEF Survey & GDP

Chart 3: Latin America Covid Recovery Trackers
(% Difference from Jan.-6th Feb.)

Chart 4: Regional Average Covid Recovery Trackers
(% Difference from Jan.-6th Feb.)

Sources: Refinitiv, Google, Apple, Moovit, FGV, IMEF, Markit, CE


Quinn Markwith, Latin America Economist, quinn.markwith@capitaleconomics.com