Poll Shows Global Economy to Weigh Heavy on Latin America in 2013 Reuters
go to original October 12, 2012

Latin America will face a tougher 2013 than previously thought as the global economy heads toward another poor year, stifling demand for the region’s exports, a Reuters poll shows.

Nonetheless, the survey of around 60 economists showed most of the major Latin American economies will likely end this year with a stronger performance than thought before.

Most countries will probably still continue to grow by more than 3% next year on strong domestic consumption - far greater than in Europe and the US where policymakers are struggling to create jobs and restore confidence.

Economists raised their forecasts for 2012 growth for Argentina, Chile, Mexico, Peru and Venezuela, but cut their forecasts for 2013 growth in Chile, Colombia, Peru and Venezuela from a similar poll conducted in July.

A separate poll last week showed that analysts also trimmed their 2013 growth forecasts for Brazil, Latin America’s largest economy, to 4% from 4.2% previously.

Forecasts for 2013 growth in Mexico remained intact, while inflation-stricken Argentina is seen faring better next year.

The outlook for the year ahead is similar to the view of the International Monetary Fund, which cut its growth forecasts for Latin America because of the region’s vulnerability to the eurozone crisis and to a sharper slowdown in China.

The contagion will likely be felt by a wide range of sectors on top of commodity exporters, such as iron ore miners in Brazil and oil companies in Colombia and Venezuela.

“Wine, salmon, other agro-industrial products, they all have Europe and the US as very important destinations,” Alejandro Puente, head economist at BBVA Chile in Santiago, said. “This backdrop of slow growth worldwide is certainly going to have an adverse effect.”

In Brazil, where industry has been shrinking in the past two years, businesses complain not only about dwindling exports but also the low prices of industrial goods worldwide, which have complicated efforts to deal with rising local costs while attracting a flurry of cheap imports.

The global backdrop also weighs on private investments, said André Loes, chief economist for Latin America at HSBC. “If you only listen to bad news, you are going to be less confident.”

Separate Reuters polls showed little hope for a big rebound in Europe in 2013, while the US will continue to grow only modestly. Meanwhile, it remains uncertain whether China, one of Latin America’s main trading partner, can pull out of its downward trend.

The risk of subdued world growth in the years ahead warranted a 10th straight interest rate cut in Brazil this week. Other Latin American countries have also responded to the global crisis, with two rate cuts in Colombia and another in Chile earlier this year.

Interest rates will likely remain at their current levels across most of the region until at least the end of 2013, the poll showed, despite slightly stronger inflation.

Prices are on the rise in Latin America not only because of a severe drought in the US, which sent food prices up worldwide, but also because of the local demand that has been fueling economic growth - complicating any efforts by central banks to cool prices. Unemployment, for example, is around record lows in Chile and Brazil.

While Mexico is the country most exposed to the US economy, full-year growth forecasts were not downgraded from the latest poll. The reason, economists said, is the expectation of approval of some reforms that would help drive production costs further down.

Mexico, Latin America’s second largest economy, is expected to grow by 3.8% in 2012, up from a previous forecast of 3.7%, and by 3.5% in 2013, unchanged from July’s poll.

Mexico’s lower House of Congress in late September approved the biggest overhaul of the country’s job market in over 40 years.

Other changes are on the radar of President-elect Enrique Pena Nieto, such as energy and fiscal reforms. Pena Nieto will take office on Dec 1.

“The prospects for reforms have been enough already to boost investments in Mexico. I spent three days there recently and returned very impressed with that,” HSBC’s Loes said.

The only country that has seen an upward revision to its 2013 growth forecasts, Argentina, will probably benefit from higher grain prices following the drought in the US. But Latin America’s third largest economy will remain crippled by high inflation, economists say.

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