Here is a reminder, if any were needed, of how economists and investors have turned sour on Latin America during the course of this year.
Our chart, from Consensus Economics, a polling company, shows economic and financial forecasters have changed their view on GDP growth in 2014 in six Latin American countries during the course of 2013.
Venezuela is the most eye-catching. It started the year at the bottom of the league and is ending it spectacularly so. Top performers Colombia and Chile, which started the year well, have fared much less badly.
Of greater interest, however, are Brazil and Mexico. Each started the year with economists expecting GDP growth of about 4 per cent. In Brazil’s case, the outlook has soured to the extent that the consensus has fallen to 2.4 per cent. As Bloomberg reported on Thursday, pessimism on the country has soared to a record, with just 10 per cent of Bloomberg customers expecting it to avoid a ratings downgrade during the next year. (Standard & Poor’s, Moody’s and Fitch all have Brazil one level above their lowest investment grade rating; S&P put it on negative outlook in June.)
In Mexico’s case, initial optimism about the country’s new, reform-minded government has faded and both consumer and business confidence have taken a hit. Growth was just 0.8 per cent in the first quarter and the economy contracted by 0.7 per cent in the second.
But things began to look up in the third quarter. Figures published on Thursday showed an expansion of 3.4 per cent on the previous quarter and of 1.3 per cent year on year.
So, time to fill your boots? After all, many analysts and investors are sticking to their view that Mexico will deliver its promised energy reforms and that this will be a game-changer for the economy.
The argument for Brazil is rather more contrarian: with president Dilma Rousseff set to end the last year of her four year term next year with slow growth, high inflation and widening current account and budget deficits, some investors say the only way is up. An opposition victory in next October’s elections, the argument goes, would install a government with a zeal for reform not seen since the days of former president Fernando Henrique Cardoso, the man who conquered high inflation and put Brazil on the road to prosperity. There is even talk of a job for Armínio Fraga, his superstar central bank governor, at the finance ministry.
It’s always darkest before the dawn, or so the saying goes.
Who is most confident in LatAm? Peruvians, beyondbrics
Brazil and Mexico: trading places?, bb
Demand for shares in Latin America outstrips supply, FT
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