The recovery of growth in Latin America it continues to be very heterogeneous. We are simultaneously witnessing the impact of the currency crisis in Argentina and the uncertainty about the depth of fiscal reforms and pensions of the new Government in Brazil. On the other hand, the Andean countries continue to accelerate, hand in hand with the recovery of domestic demand; while Mexico receives positive and negative news at the same time.
Starting with Argentina, the currency crisis and the need to tackle it with an even more restrictive fiscal and monetary policy, it will generate a strong recession this year, with a GDP fall of 2.4%. However, if the ongoing program manages to stabilize the exchange rate and quickly reduce inflation expectations -and, although it is still early, the first weeks point in that direction- the external sector should begin to push growth and make it slightly positive from the first quarters of next year, to return to the potential growth of Argentina (closer to 3%) in 2020.
In Brazil, the economic outlook depends crucially on how ambitious the fiscal and pension reforms undertaken by the new government are. However, political polarization and the fragmentation of Congress, among other factors, suggest that these reforms will not be very ambitious and the high public debt will continue to weigh on growth, which will hardly surpass 2% in the medium term.
Mexico has received mixed news. On the one hand, the trade agreement with the United States and Canada has been good news, especially considering the alternatives that were once on the negotiating table, starting with no agreement. However, in the face of this lesser uncertainty on the commercial side, the damage caused by the cancellation of the construction of the Mexico City airport must be offset by investor confidence. In this context, it will be difficult to overcome sustained growth of around 2% forward.
The positive face is presented by the Andean countries: Colombia, Peru and Chile. In all three cases we continue to see a recovery in growth – a little behind in the case of Colombia – in line with domestic demand, and after the slump that they suffered, for different reasons, in 2016 and 2017. With a growth perspective between 3.5% and 4% for the next few years will undoubtedly be the most dynamic economies among the largest countries in the region.
Therefore, Latin America continues to show a very heterogeneous outlook, with high uncertainty in its three largest economies, but favorable prospects in the three main Andean economies. Several different stories in the same continent.
Juan Ruiz, from BBVA Research.