The regional growth outlook for Latin America resumed its downward trend in May after a temporary pause in April. LatinFocus Consensus Forecast panellists project regional GDP to increase 3.4% this year, which is down 0.1 percentage points from last month’s forecast. The lower reading reflects downward revisions to four out of the 11 economies surveyed, including regional giants Brazil and Mexico, which account for more than 60% of the regional average. In contrast, the outlook for three economies was revised up, whereas prospects for the remaining four countries were left unchanged. Meanwhile, prospects for next year were revised a notch down, with the panel now forecasting growth to pick up to 3.8%.
The deteriorating outlook for Latin America comes against a backdrop of moderate but stable prospects for global growth. In particular, the U.S. economy has so far withstood the downside impact from the fiscal retrenchment, as stronger-than-expected private consumption offset lower public spending in the first quarter. However, the recovery remains fragile and the automatic budget cuts that came into effect on 1 March – commonly termed the sequester – will continue to weigh on growth in the quarters ahead. Meanwhile, the Euro area economy continues to falter and recorded its sixth consecutive contraction in the first quarter, with all the region’s largest economies, except Germany, now mired in recession. The Japanese economy, in contrast, recorded its strongest expansion in a year, buttressed by the massive stimulus measures introduced by Prime Minister Shinzo Abe – dubbed Abenomics – along with an unprecedented monetary easing implemented by the Bank of Japan.
Weak U.S. economy weighs on Mexico’s growth
Reflecting the difficult global economic environment, the Mexican economy, which is closely tied to the U.S. business cycle, is showing signs of a slowdown. In the first quarter, GDP grew only 0.8%, which came in well below the annual 3.2% expansion seen in Q4 2012. Furthermore, industrial output recorded in March the worst contraction seen since October 2009 and manufacturing sentiment moderated in April for the fourth month in a row. Against this backdrop, LatinFocus Consensus Forecast panellists lowered their growth projections for this year by 0.2 percentage points and now expect the economy to increase 3.3%. For next year, the panel sees growth accelerating to 3.9%.
Brazilian economy remains fragile amid mixed signals
Meanwhile, latest indicators in Brazil are sending mixed signals. On the one hand, both economic activity and industrial production rebounded in March, expanding 0.7% over the previous month in seasonally adjusted terms. Retail sales, on the other hand, fell for the second straight month and inched down 0.1% over February. Moreover, while forward-looking indicators remained in positive territory in April, business confidence continued to moderate and consumer confidence remained unchanged at its lowest level in three years. Furthermore, persistent high inflation (April: 6.5%) is hampering consumption, adding further uncertainty to the economic outlook. LatinFocus Consensus Forecast panellists expect Brazilian GDP to grow 3.1% this year, which is down 0.1 percentage points from last month’s estimate. For next year, the panel also revised down its projections and now sees growth at 3.6%, which is down 0.1 percentage points from the previous month’s forecast.
Regional central banks stay put fulfilling market expectations
On the monetary policy front, central banks in Chile, Colombia, Mexico and Peru favoured a wait-and-see approach and left interest rates unchanged, which was in line with market expectations. Unlike in previous meetings, the Peruvian Central Bank did not modify the reserve requirement ratio nor intervened in the currency market, prompting the local currency to weaken somewhat in April. There were no monetary policy meetings in Brazil and Uruguay this month.
Regional inflation accelerates in March
In April, regional inflation accelerated to 6.5% from 6.3% in March, mainly reflecting higher inflation in Venezuela (March: 24.2%; April: 27.9%) as well as in Mexico (March: 4.3%; April: 4.6%). LatinFocus Consensus Forecast panellists expect regional inflation to close the year at 6.6%, which unchanged from last month’s projection. For 2014, panellists forecast inflation to end the year at 6.4%, which is down 0.1 percentage points from last month’s forecast.Note: This is an excerpt from the LatinFocus Consensus Forecast Latin America – May 2013. Published May 21st, 2013. The full report (126 pages, covering 11 major Latin American economies is available for immediate download at the FocusEconomics Online Store). For more information and a free sample of the report please visit our website.