Your SlideShare is downloading. ×
0
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
''What to Expect from Latin American Economies in the Current Global Context?'
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

''What to Expect from Latin American Economies in the Current Global Context?'

401

Published on

Latin America has changed both in politics and economics. It is now better prepared to weather global instability. …

Latin America has changed both in politics and economics. It is now better prepared to weather global instability.

Volatility has returned to Latam markets, but we expect differentiation going forward, based on fundamentals. Most countries have good buffers to withstand the Fed’s tapering.

Latam GDP growth will increase from 2.2% in 2013 to 2.5% in 2014 and 2.6% in 2015. Growth differences within the region will increase: the Pacific Alliance will grow close to 4% in 2014 and 2015, more than double the pace in Mercosur.

Regional growth will remain relatively high for its income level, converging to its potential in most countries. We expect growth for the region to converge to nearly 4% in the medium-long run.

However, it is crucial that reforms continue to be pushed through to avoid weakening drivers of long-term growth.

Published in: Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
401
On Slideshare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
14
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. What to Expect from Latin American Economies in the Current Global Context? Alicia Garcia Herrero Chief Economist Emerging Markets BBVA United Nations University, Tokyo March 2014
  • 2. Latam Outlook / March 2014 Main messages 1 Latin America has changed both in politics and economics. It is now better prepared to weather global instability. 2 Volatility has returned to Latam markets, but we expect differentiation going forward, based on fundamentals. Most countries have good buffers to withstand the Fed’s tapering 3 Latam GDP growth will increase from 2.2% in 2013 to 2.5% in 2014 and 2.6% in 2015. Growth differences within the region will increase: the Pacific Alliance will grow close to 4% in 2014 and 2015, more than double the pace in Mercosur. 4 Regional growth will remain relatively high for its income level, converging to its potential in most countries. We expect growth for the region to converge to nearly 4% in the medium-long run. 5 However, it is crucial that reforms continue to be pushed through to avoid weakening drivers of long-term growth Page 2
  • 3. Latam Outlook / March 2014 Contents 1 Latam structural situation in a new world 2 Latam breaks with the past 3 Short-term perspectives 4 Strengths and vulnerabilities Page 3
  • 4. Latam Outlook / March 2014 Beyond China and India, some Latin American countries are world players EAGLEs (excluding China and India)* vs G6 Economies: current economic size and contribution to World economic growth 2012-2022** in billion USD adjusted by PPP ** Size of the bubble are proportional to 2012 level; below country labels Source: BBVA Research and IMF WEO 1300 Incremental GDP 2012-2022 1200 1100 Indonesia 1219 Brazil 2363 Russia 2520 EAGLEs Advanced 1000 900 Korea 1618 800 700 600 Japan 4623 Turkey Germany 1126 3207 Mexico 1768 UK 2335 Taiwan 905 G6 avg. 2620 500 400 300 Note: EAGLEs members, according to January 2013 forecast. Page 4
  • 5. Latam Outlook / March 2014 Other smaller ones also globally relevant • As many as 15 economies in the NEST (contributing more to global GDP than smallest G6, Italy) • Egypt relegated from the EAGLEs; Chile and Ukraine advanced from the group of other EM to NEST Nest, G6 and Other Economies: current economic size and contribution to World economic growth 20122022 (%)* in billion USD adjusted by PPP ** Size of the bubble are proportional to 2012 level; below country labels Incremental GDP 2012-2022 Source: BBVA Research and IMF WEO 500 G6 avg. 2620 Nigeria Nest 453 Australia France 450 2260 967 Advanced Colombia 400 Others 500 Malaysia Spain Egypt Thail. 498 1415 S.Africa 540 350 655 S.Arabia 580 Iraq 744 Canada 300 G6 min. 156 Argentina 1451 Vietnam 745 (Italy) Iran 322 Poland Bang. 250 1002 1808 307 Philip. 806 425 200 Peru 328 Pakistan Chile 150 517 322 100 Note: NEST members, according to January 2013 forecast. Page 5
  • 6. Latam Outlook / March 2014 Pacific trio taken together also huge • Colombia, Peru and Chile belong to the Nest, with average expected growth of around 5% for the next 10 years. • The three countries are characterized by their reform drive, prudent macroeconomic policies and increasing integration with the global economy (including the Asia-Pacific region). EAGLEs and Latam: increase of GDP in the next 10 years Latam: current GDP size and increase in the next 10 years (PPP-adjusted bn USD) (PPP-adjusted bn USD) 1200 1100 1000 900 800 700 600 500 400 300 200 100 0 3500 Source: BBVA Research and IMF (WEO) Source: BBVA Research and IMF (WEO) 2012-2022 3000 2012 2500 2000 1500 1000 Venezuela Chile Peru Colombia Argentina Mexico 0 Brazil G6 average Taiwan UK Mexico Germany Turkey Japan Korea Andean-3 Russia Brazil Indonesia 500 Page 6
  • 7. Latam Outlook / March 2014 New middle class to support domestic demand but trend much bigger in Asia than in LATAM • Latam economies face intense competition from Asia, as the region where middle classes will increase the most. Emerging Markets: middle classes ranges by area (2010 PPP-adjusted USD) Source: BBVA Research 1400 High MC Medium MC Low MC 1200 East Asia = China, Indonesia, Korea, Malaysia, Philippines, Thailand, Vietnam 1000 South Asia = India, Bangladesh, Pakistan 800 LatAm = Brazil, Mexico, Argentina, Chile, Colombia, Peru 600 400 Em. Europe = Russia, Turkey, Poland, Ukraine 200 Africa = Egypt, Nigeria, South Africa 0 2010 2020 2010 2020 2010 2020 2010 2020 2010 2020 East Asia South Asia LatAm Em.Europe Africa Middle class: High (25,000-40,000 USD), Medium (15,000-25,000 USD) & Low (5,000-15,000 USD). Page 7
  • 8. Latam Outlook / March 2014 Contents 1 Latam in the EAGLEs 2 Latam breaks with the past 3 Short-term perspectives 4 Strengths and vulnerabilities Page 8
  • 9. Latam Outlook / March 2014 LATAM breaking with the past After decades of poor performance, LATAM growing solidly and closing the gap with developed economies. The 2008-09 crisis was the stress test: it was the first big shock without a divergence in terms of per capita GDP. LatAm: GDP per capita relative to G7 (%) Source: IMF and BBVA Research 38 % LatAm: GDP per capita, relative performance to G7 during recession periods Source: IMF and BBVA Research 110 36 % 34 % 105 32 % 100 30 % 28 % 95 26 % 90 24 % Years since the beginning of the recession 22% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 85 20% -2 -1 0 1 2 Recession's average (1981, 1996, 2001) Last Recession, 2009 3 4 Page 9
  • 10. Latam Outlook / March 2014 Why is LATAM breaking with the past? 1) Structural reforms: reforms that began in the 80s are transforming Latin America. Macroeconomic reforms Microeconomic reforms • Fiscal consolidation with higher and better taxes • From labor protection to targeted transfers to the poor • Independent Central Banks • Liberalization of internal markets and privatizations • Financial reform • Opening of the Economy • Receptiveness of FDI • Pension system reforms Better Business Climate for investment and more equitable societies Page 10
  • 11. Latam Outlook / March 2014 Why is LATAM breaking with the past? 2) Economic stability: While taming inflation in the late 90s, the region made sustained progress in external and public solvency over the years. LatAm: Inflation LatAm: External and Fiscal Balance. LatAm: External Debt (CPI, % yearly average) (As % of GDP) (As % of GDP) Source: BBVA Research Source: BBVA Research Source: BBVA Research 350 350 300 300 250 250 200 200 150 150 50 50 0 0 00's 10's (2010-12) 80's 90's 50 50 0 0 45 45 -2 40 40 -4 -4 35 35 -6 -6 30 30 -8 -8 25 25 -10 100 2 -2 100 2 -10 20 20 -12 -12 15 15 -14 -14 10 10 -16 00's 10's (2010-12) 5 5 -16 80's 90's Current Account Fiscal Balance 0 80's 90's 0 00's10's (2010-12) Page 11
  • 12. Latam Outlook / March 2014 Why is LATAM breaking with the past? 3) Institutional stability: Economic change has come along with institutional progress LatAm: Political Freedom (Freedom House Index, % of free countries) Source: BBVA Research with Freedom House data 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 75 80 90 00 10 Page 12
  • 13. Latam Outlook / March 2014 Why is LATAM breaking with the past? 4) Sound banking system: The banking systems have been able to speed up credit supply, to cut NPL losses and to preserve high capital to assets levels. Latam: credit as % of GDP LatAm: NPL % Source: BBVA Research, Source: BBVA Research, GSFR. *Last available information 90 25 80 20 70 60 15 50 40 10 30 20 5 10 0 ARG 2003 BRA CHI 2012 COL MEX PER PAR URU VEN 0 ARG 2003 BRA CHI COL MEX PER PAR URU VEN 2012 Page 13
  • 14. Latam Outlook / March 2014 Why is LATAM breaking with the past? 5) Supportive domestic demand: LATAM growth rests on the strength of domestic demand. For the first time in decades, growth comes along with the reduction of poverty and inequality, which drives domestic demand up. Latam: Domestic demand and GDP (%yoy) Source: BBVA Research. LatAM: ARG, BRA, CHI, COL, MEX, PAN, PAR, PER, URU, VEN 6.0 Latam: Private Consumption, Investment & GDP (%yoy) Source: BBVA Research. LatAM: ARG, BRA, CHI, COL, MEX, PAN, PAR, PER, URU, VEN 10.0 9.0 5.0 8.0 7.0 4.0 6.0 5.0 3.0 4.0 2.0 3.0 2.0 1.0 1.0 0.0 Avg 20032010 2011 Domestic Demand 2012 GDP 2013* Avg* 20142018 0.0 Avg 20032011 2010 Private consumption 2012 2013* Investment Avg* 20142018 Page 14 GDP
  • 15. Latam Outlook / March 2014 Why is LATAM breaking with the past? 6) Asia and commodities: LATAM countries are also benefiting from Asian demand for commodities. Trade flows Asia-LATAM (USD millions) Composition of Exports from LATAM to Asia Source: BBVA Research y COMTRADE. Fuente: BBVA Research y COMTRADE. (% total) 160,000 140,000 120,000 Other 30% 100,000 Commoditi es 70% 80,000 60,000 40,000 20,000 0 1990 Exports from Asia to Latam 2000 2010 Exports from Latam to Asia Page 15
  • 16. Latam Outlook / March 2014 Contents 1 Latam in the EAGLEs 2 Latam breaks with the past 3 Short-term perspectives 4 Strengths and vulnerabilities Page 16
  • 17. Latam Outlook / March 2014 Volatility returned to Latam markets but, recently, more differentiation Variations in EM exchange rates (%) Source: BBVA Research and Bloomberg Volatility also affected Latam: currency depreciation, higher sovereign spreads and weaker equity markets 10% 8% 6% However, capital flows into the region have not reversed, just slowed 4% 2% We expect contagion from the sharp currency depreciation in Argentina to be limited, with only a moderate effect on Brazil and Uruguay 0% -2% CHI COL PER MEX BRA TUR IND INDO 17-Dec to 20-Jan 20-Jan to 11-Feb RSA The markets already appear to be starting to differentiate on the basis of macro fundamentals and solid policies Market expectation for the next 12 months *RSA: Republic of South Africa Page 17
  • 18. Latam Outlook / March 2014 Growth will increase from 2.2% in 2013 to 2.5% in 2014 and 2.6% in 2015 Latam*: GDP growth (%) Source: BBVA Research 7 6 6.0 Activity will accelerate in 2014 as Mexico leaves behind temporary negative shocks … 5 4.0 … and external demand gradually recovers in line with global growth 4 3 2.6 2.2 2.5 2.6 In the longer term, regional growth will start to converge to its potential, around 3.5% 2 1 0 2010 Latam 2011 2012 Pacific Alliance 2013 2014 2015 Increasing divergence: Pacific Alliance will grow 3.8% in 2014 and 3.7% in 2015, more than double the rate in Mercosur Mercosur * Latam: weighted average of Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay and Venezuela; Pacific Alliance: Chile, Colombia, México, Peru. Mercosur: Argentina, Brasil, Paraguay, Uruguay, Venezuela Page 18
  • 19. Latam Outlook / March 2014 The Andean countries and Paraguay will continue to post the fastest growth Latam countries: GDP growth (%) Source: BBVA Research 14.0 12.0 Mexico will see strong growth in 2014 after the downturn in the construction sector in 2013 10.0 8.0 6.0 4.0 2.0 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 0.0 ARG BRA CHI COL MEX PAR PER URU Latam MCS Brazil will record moderate growth of 2.5% in 2014, reflecting the negative impact of tighter monetary policy and structural problems AP Jan. 2014 Forecast Nov. 2013 forecast Page 19
  • 20. Latam Outlook / March 2014 Pressure on fiscal deficits will continue, but they will remain manageable Latam: Fiscal deficits (% GDP) Source: BBVA Research and Haver Analytics 2.0 1.0 0.0 Only moderate growth in internal demand and lower raw materials prices will continue to put pressure on fiscal balances -1.0 -2.0 -3.0 -4.0 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 -5.0 ARG BRA CHI COL MEX PAR PER URU Fiscal deficits should start to ease from 2015 onwards, as growth and external demand recover Latam Forecasts in February 2014 Forecasts in November 2013 Page 20
  • 21. Latam Outlook / March 2014 External deficits will start to shrink in 2014 Latam: Balance on current account (% GDP) Source: BBVA Research and Haver Analytics 2.0 1.0 Deficits will start to decline, particularly in those countries with a bigger foreign trade gap (Peru, Uruguay) 0.0 -1.0 -2.0 -3.0 The outlook for exports will improve as the supply problems in the export sector in some countries improve … -4.0 -5.0 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 -6.0 ARG BRA CHI COL MEX PAR PER URU Latam Forecasts in February 2014 ….as well as due to currency depreciation and the recovery in global growth Forecasts in November 2013 Page 21
  • 22. Latam Outlook / March 2014 Inflation mainly to converge to central bank targets (Uruguay and Brazil exceptions) Inflation (%yoy) Source: BBVA Research and Haver 12 10 8 Gradual convergence of inflation with central bank’ central target, except in Brazil and Uruguay 6 4 Contained demand pressure and more moderate food prices will help to contain inflation 2 0 -2 BRA CHI MEX COL PER Sep-15 May-15 Jan-15 Sep-14 May-14 Jan-14 Sep-13 May-13 Jan-13 Sep-12 May-12 Jan-12 Sep-11 May-11 Jan-11 Sep-10 May-10 Jan-10 -4 Currency depreciation will in general terms have a limited pass-through to inflation URU Page 22
  • 23. Latam Outlook / March 2014 Heterogeneous monetary policy due to different inflation and cyclical positions Official interest rate in IT countries (%) Source: BBVA Research and Haver 14 In future, tighter monetary policy in Brazil and Uruguay due to the pressures on inflation 12 10 The Pacific Alliance countries will follow different paths, in line with their cyclical positions 8 6 The divergence between nominal and real interest rates will continue between Brazil and the Pacific Alliance countries 4 2 BRA CHI COL MEX PER Sep-15 May-15 Jan-15 Sep-14 May-14 Jan-14 Sep-13 May-13 Jan-13 Sep-12 May-12 Jan-12 Sep-11 May-11 Jan-11 Sep-10 May-10 Jan-10 0 Interest rates will rise in 2015, due to inflation (Brazil) or cyclical improvement (Pacific Alliance) Page 23
  • 24. Latam Outlook / March 2014 Relatively stable exchange rates in 2014-2015 with the exception of Brazil and Uruguay Latam: exchange rate depreciation vis a vis USD (%) Source: BBVA Research and Haver 20 Contained depreciation: most of the impact of tapering in the US was priced-in by the markets in 2013 15 10 The principal exception will be Brazil: sharp depreciation in 2014 and 2015 due to higher inflation and efforts to recover part of the loss of competitiveness... 5 0 Uruguay will also be dragged by higher inflation than its neighbours and the currency depreciation experienced by its trade partners -5 BRA CHI COL 2013 depreciation 2015 depreciation (forecast) MEX PAR PER URU 2014 depreciation (forecast) Page 24
  • 25. Latam Outlook / March 2014 Contents 1 Latam in the EAGLEs 2 Latam breaks with the past 3 Short-term perspectives 4 Strengths and vulnerabilities Page 25
  • 26. Latam Outlook / March 2014 Reduced vulnerability to external shocks, both in terms of flows … External deficits, in the majority of cases financed by FDI, less volatile in periods of market turbulence Eliminating the cyclical component, the structural deficits in Latam will not exceed 3% of GDP: sustainable given the outlooks for growth in the region Deficit on current account and financing with FDI (% GDP) Balance on current account , cyclical and structural component (% GDP) Source: BBVA Research and national statistics Source: BBVA Research and Haver Analytics 7 2.0 1.0 6 0.0 5 -1.0 -2.0 4 -3.0 ARG BRA CHI Current Account Deficit COL FDI MEX PER URU 2008-2012 2013f 2020f 0 2008-2012 2013f 2020f 1 2008-2012 2013f 2020f -5.0 2008-2012 2013f 2020f 2 2008-2012 2013f 2020f -4.0 2008-2012 2013f 2020f 3 Argentina Brazil Chile Colombia Peru Uruguay Structural Component Cyclical Component Estimated 26 Page
  • 27. Latam Outlook / March 2014 … and stocks High levels of international reserves … … and substantial reduction in public- and private-sector debt with less foreign-currency exposure Deficit and public-sector debt (% PIB) Source: BBVA Research, Haver Analytics and national statistics Source: BBVA Research and Haver Analytics 35 7 Reserves*/GDP (%) 30 25 6 Months of imports (right)* Reserves*/short-term funding needs** 5 20 4 15 3 10 2 5 1 0 ARG BRA CHI COL MEX PER URU * International reserves include IMF FCL lines in the case of Colombia and Mexico and sovereign funds in the case of Chile and Peru ** The need for short-term financing is the sum of the deficit on current account in 2014, short-term debt and long-term debt maturities in 2014. Estimated net public debt in 2013 (% of GDP) International reserve indicators 50% ARG 40% URU MEX BRA 30% COL 20% 10% PER 0% CHI -10% 0% 1% 2% 3% 4% 5% Expected fiscal deficit in 2014 (% of GDP) Page 27
  • 28. Latam Outlook / March 2014 Flexible exchange rates have already acted as the first buffer against external shocks Exchange-rate pass-through to inflation: impact on inflation of 10% currency depreciation Source: BBVA Research and IMF 5.0 A flexible exchange rate is the first buffer against an external shock, and has already started to act 4.0 3.0 If this is to work as a buffer, it is crucial to reduce dollar exposure, as the region has done 2.0 1.0 Uruguay Peru Mexico Colombia Chile Brazil 0.0 The credibility of monetary policies has also helped to reduce the exchange-rate passthrough to inflation Page 28
  • 29. Thank you! For comments and questions, please contact me at : alicia.garcia-herrero@bbva.com.hk March 2014

×