Brazil and Mexico lead downward revision to Latin America growth outlook

The growth outlook for Latin America deteriorated again this month, continuing the downward trend observed since June last year. LatinFocus panellists cut their forecast for regional GDP growth in 2013 by 0.2 percentage points over the last month to 3.0%. As in the previous three months, the deterioration primarily reflects downward revisions to the growth forecast for Brazil and Mexico, which account for more than 60% of the regional output. In addition, prospects for Chile, Colombia, Peru, Uruguay and Venezuela were also revised down, whereas those of Argentina, Bolivia and Ecuador were left unchanged. Only the growth forecast for Paraguay was revised up (to a far-above-average 11.0%), as the economy bounces back strongly from a 1.2% contraction last year. The panel also cut regional prospects for 2014 by 0.2 percentage points over last month, with forecasters now projecting growth to pick up to 3.5%.

photo by creativity103

photo by creativity103

Global outlook remains subdued

The deteriorating outlook for the region comes within a global context of lower growth forecasts for the Eurozone and the BRIC economies, which more than offset upward revisions to Japan and the United Kingdom. The outlook for the United States remained unchanged over the previous month, with news mostly focused on the possible timing and pace of the Federal Reserve’s exit strategy from its quantitative easing (QE) programme. Fed Chairman Ben Bernanke indicated on 19 June that monetary authorities may start tapering the QE program later this year, triggering tensions in financial markets that temporarily drove yields on 10-year U.S. Treasuries to the highest levels in three years.

The Eurozone remains deeply mired in recession, with record unemployment and the persistent fiscal drag in most member states overshadowing the outlook, even though some forward-looking indicators are showing first signs of hope. Meanwhile, analysts are increasingly optimistic that the economic stimulus policies implemented by Prime Minister Shinzo Abe in Japan will succeed in jolting the economy from its long-lasting slump. In China, GDP growth slowed further in the second quarter (albeit to a still robust 7.5% annual growth rate), fuelling concerns that the global growth engine will falter in the second half of the year.

Protests spread across the country as economy remains depressed

In Brazil, politics took centre stage, as a wave of protests swept across the country. Initially the protests began with peaceful demonstrations against a hike in public transport fare in Sao Paolo. However, the turmoil quickly spread to other cities, forcing Brazil’s President Dilma Rousseff to make a public pledge ensuring improvements to transport, health care and education. After the first wave of discontent quieted, the country’s main labour unions seized the opportunity and called for a one-day nationwide general strike on 11 July to support their demands for improved working conditions and better public services. In contrast to the previous spontaneous demonstrations, the so-called “National Day of Struggles” remained largely peaceful. However, the waves of discontent had a negative effect on the Brazilian real, which dropped to its lowest level since mid-2009. Recent economic data add to the gloomier picture. Industrial production contracted in May and retail sales were flat in the same month. Moreover, forward-looking indicators such as business and consumer confidence declined in June, suggesting another quarter of sluggish economic growth. LatinFocus Consensus Forecast panellists expect Brazilian GDP to grow 2.5% this year, which is down 0.3 percentage points from last month’s estimate. This month’s cut to Brazil’s GDP growth forecast comes on top of a downward revision of the same magnitude the month before, thus slicing off more than half a percentage point from the country’s expected 2013 GDP growth in just two months. For next year, the panel also revised down its projections and now sees growth at 3.0%, which is down 0.4 percentage points from the previous month’s forecast.

photo by Semilla Luz

photo by Semilla Luz

Mexico shows signs of slowdown amid global headwinds

Reflecting the global headwinds, the Mexican economy is showing signs of a slowdown. In the first quarter, GDP expanded at the slowest pace since 2009, and while economic activity grew at a faster-than-expected pace in April, the reading was partly boosted by calendar effects. More recent data point to softer-than-expected growth in the second quarter. Exports declined in May and manufacturing confidence fell to the lowest level in four years in June. Similarly, consumer sentiment fell to its lowest level in 18 months, contrasting market expectations, which had the index improving. Against this backdrop, LatinFocus Consensus Forecast panellists lowered their growth projections for this year by 0.2 percentage points over last month and now expect the Mexican economy to grow 2.9%. For next year, the panel sees growth accelerating to 3.9%.

Panellists revise inflation outlook upwards

Regional inflation rose from a revised 6.9% in May to 7.2% in June. The stronger regional print mainly reflects higher inflation in Venezuela, which jumped from 33.7% in May to 37.3%, continuing the rapid upward trajectory in place since November last year, when inflation was less than half the current rate. LatinFocus Consensus Forecast panellists expect regional inflation to close the year at 7.0%, which is up 0.2 percentage points from last month’s projection. For 2014, panellists forecast inflation to end the year at 6.7%.

Note: This is an excerpt from the LatinFocus Consensus Forecast Latin America – July 2013. Published July 16th, 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.

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