BBVA Research: “Latin America should grow 3.6% in 2012 and 3.8% in 2013”
Sicilia said that the region is headed to a normal growth rate, close to its economies’ output capacity. He explained that the slowdown in the countries is the result, first, of a higher-than-expected uptick in inflation, especially in Chile and Peru, limiting any increase in consumer purchasing power despite sharply higher employment and wages.
- (1888PressRelease) February 15, 2012 - Another commonality to all of the countries is global risk aversion, which has placed pressure on currencies and led to greater uncertainty. Moreover, Argentina, Brazil, Paraguay and Uruguay have had to cope with the La Niña-related drought, which has been detrimental to grain harvests and contributed to a slowdown in domestic demand.
Nevertheless, fixed-capital investment has been robust, driven by the influx of foreign investment in areas with plentiful natural resources such as Chile, Colombia and Peru. These factors, in addition to expectations for higher public investment in these two countries and in Brazil, mean that domestic demand should continue to spur growth.
BBVA Research’s chief economist said Mexico remains on target to grow 3.3% in 2012, and confidence that this level of growth will be attained has been bolstered by the fact that the United States has among the strongest outlooks of developed countries.
The BBVA Research report projects that, from 2012 to 2015, Peru, Colombia and Panama will experience the highest growth, above 5% on average. Paraguay also stands to see strong growth (an average rate above 5%), provided it is able to overcome the health problems that have undermined meat exports and that it is aided by more favorable weather conditions for soy production.
Inflation, a key issue
Five of the largest countries of the region experienced higher-than-expected inflation in 2011, and only Venezuela and Argentina had rates slightly below expectations. The rise in inflation was stoked by food prices and currency depreciations in the latter part of the year. In 2012, the combination of currency revaluations, a downward correction in food prices and an easing of pressure from domestic demand is expected to help contain inflation at about official central bank targets. Jorge Sicilia warned, nevertheless, that if domestic demand comes under pressure there will be a lingering risk of inflation remaining above target, which could change the course of interest rates, given remaining doubts surrounding the region’s commitment to stability.
Regarding currency prices, BBVA Research projects that in the countries of the region, with the exception of Colombia and Peru, currencies will trend downward, making it necessary for them to resort to international reserves. Against a backdrop of a sluggish global economy, this will trigger a downward correction in the prices of the Latin America’s main commodity exports while the problems faced by some European countries will translate into continued financial-market tension.
Robust external and fiscal balances
Latin American countries have sound external balances because they have all taken advantage of high prices for commodity exports to accumulate international reserves. “The so-called ‘currency war’ means that the strength of Latin American currencies is backed not only by the favorable terms of trade and strong capital flows, but also by countries’ higher net external asset position,” noted Jorge Sicilia.
He said Chile and Peru are on very sound fiscal footing, with balance surpluses and sizeable savings with which to deal with any contingency. In addition, they have ready access to credit and low levels of public indebtedness. On the next rung are Brazil, Colombia and Mexico, which, despite their larger deficits, have manageable levels of public indebtedness and access to borrowing. Panama, although closely behind these countries, has a high current account deficit and faces a mounting fiscal deficit. On the third rung are Argentina and Venezuela, which, while not facing a fiscal crisis, are vulnerable to commodity prices and have limited access to credit.
About BBVA
BBVA is a customer-centric global financial services group founded in 1857. The Group has a solid position in Spain, it is the largest financial institution in Mexico and it has leading franchises in South America and the Sunbelt Region of the United States. Its diversified business is biased to high-growth markets and it relies on technology as a key sustainable competitive advantage. BBVA ranks among the leading Euro zone banks in terms of ROE and efficiency. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture. It operates with the highest integrity, a long-term vision and applies the best practices. The Group is present in the main sustainability indexes.
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