Latin america: Good ol’ risk

Latin america: Good ol’ risk

Since our last update, Mexico  cancelled a USD13.3bn airport infrastructure project, Brazil now has a new president and the IMF updated its forecasts for the Argentinian economy.

Lower confidence, softening activity

At the regional level, market turmoil and policy uncertainty had a clear impact on confidence: the Sentix index (Figure 1) shows a trend reversal in sentiment starting in June, after Argentina requested IMF help and Brazil’s trucker’s strike curbed economic activity. Despite a slight improvement in October, institutional and private sector respondents remain pessimistic about the future economic situation in Latin America.

The drop in the activity index (Figure 1) was temporary and caused by Brazil (-1.5% in May) and Argentina (-4.6% in June); indeed, better August figures in Brazil and solid performance of the Andeans compensate for the recession in Argentina. However, we are likely to revise downwards our forecasts for Mexican growth next year (currently at +2.7%) after a risky policy choice of the president-elect, who is losing investor support. Besides, we see Brazilian growth capped at +2.5% and Andeans decelerating as central banks will start tightening monetary policies while commodity prices (copper, oil) are easing or stalling; 2019 gives no reasons to cheer. 

Sentiment indicator (Sentix) and growth of activity index in Latin America (y/y, %)