Business Monitor International                     …Contrast This With China            Latin America & The Caribbean     ...
Business Monitor International                                  Global Outlook• The global economy slowed significantly in...
Business Monitor International                  A Slow, But Sustained Global Expansion                 BMI Global Forecast...
Business Monitor International                         Developed Vs Emerging Markets            BMI Real GDP Forecasts    ...
Business Monitor International                                External Risks: Eurozone• Eurozone has the resources, but la...
Business Monitor International                     External Risks: China Hard Landing • Following an unprecedented credit ...
Business Monitor International                           Latin America & Caribbean      Given these global headwinds we pr...
Business Monitor International                         Those With Ammunition  There are several regional economies        ...
Business Monitor International                                        Those With Ammunition       Public Sector External D...
Business Monitor International     Those Who Are Fast Running Out Of Options    We have long been concerned about economic...
Business Monitor International                                 Venezuela       We believe the current fiscal and exchange ...
Business Monitor International                                         Argentina  Fears of a devaluation prompted massive ...
Business Monitor International                    3. Those With No Real Policy Tools     There are many smaller economies ...
Business Monitor International                                  Central America                  Honduras, Guatemala & El ...
Business Monitor International                                   Caribbean        Many Caribbean states are even more powe...
Business Monitor International                                                  Real GDP Growth Rates, %                  ...
Business Monitor International                                   Q&A    • If you would like to arrange an initial trial or...
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Latin America Risks And Opportunities - Jan 2012

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Key risks and opportunities in Latin America for 2012. This will include an overview of our global and regional views as well as our strategy for Financial Markets in Latin American & the Caribbean.

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Latin America Risks And Opportunities - Jan 2012

  1. 1. Business Monitor International …Contrast This With China Latin America & The Caribbean Risks & Opportunities In 2012 Cedric Chehab, Head of Americas Research Richard Hamilton, Head of Latin America CR & FM Tim Cooper,PBoC Source: BMI, NBS, Global Economic Strategist
  2. 2. Business Monitor International Global Outlook• The global economy slowed significantly in Q4, but it is not in recession.• The US is not entering recession, but fiscal cutbacks and household deleveragingwill hold back a recovery in growth.• The European crisis is the biggest risk. We believe the eurozone will holdtogether, but a breakup would tip the world economy into recession.• Our China fears of a ‘hard landing’ are finally starting to be realized, presentinga major risk to global demand.• Fiscal and monetary policy options are more limited now than at the onset ofthe 2008-09 recession with emerging markets better-positioned for stimulus. 2
  3. 3. Business Monitor International A Slow, But Sustained Global Expansion BMI Global Forecasts 2011e 2012f 2013f World Real GDP Growth (%) 3.0 2.7 3.4 World Consumer Inflation (% ave) 4.0 3.4 3.2 Oil Price, Brent Crude (US$/bbl) 106.00 102.00 100.00 ECB Refinancing Rate 1.00 0.50 0.50 US Fed Funds Rate 0.00 0.00 0.00 Bank of Japan Overnight Call Rate 0.10 0.10 0.10 US$/EUR Exchange Rate (average) 1.40 1.29 1.25• Developed state growth will remain erratic and weak. This leaves the global economysusceptible to downside shocks.• The major risk is of a deflationary downturn, with weak global demand and a prolongedperiod of deleveraging in the US, eurozone and China. Source: BMI Estimates
  4. 4. Business Monitor International Developed Vs Emerging Markets BMI Real GDP Forecasts 2011e 2012f 2013f World 3.0 2.7 3.4 US 1.8 2.0 2.4 Eurozone 1.6 -0.3 1.4 China 9.2 7.5 7.1 Developed States 1.3 1.1 1.9 Emerging Markets 5.6 5.0 5.3 Emerging Asia 7.3 6.3 6.5 Latin America 4.0 3.7 3.5 Emerging Europe 4.0 2.7 4.2 Sub - Saharan Africa 4.2 6.0 6.0 Middle East & North Africa 3.7 4.4 4.6 Weighted by US$ Nominal GDP. Source: BMIEmerging markets are growing more strongly than developed states, and have more room tomanoeuvre domestic policy. Developed states are largely running out of ammo. Source: BMI Estimates
  5. 5. Business Monitor International External Risks: Eurozone• Eurozone has the resources, but lacks the resolve to overcome the crisis. Mildrecession in 2012 & ‘muddle through’ is the best case scenario. • Policymakers continue to deploy ‘smoke and mirror’ tactics rather than serious reforms: • ECB as lender of last resort • Credible plan for fiscal union • Address endemic lack of competitiveness • Debt restructuring of insolvent states. • Support economic growth and job creation • Our core view remains ‘muddle through’. However, a failure to make tangible headway on the above reforms within the next 12-18 months risks a collapse of the currency union Source: Bloomberg, ECB, BMI
  6. 6. Business Monitor International External Risks: China Hard Landing • Following an unprecedented credit boom, tighter monetary policy and declines in residential construction are weighing on Chinese growth...and a hard landing is on the cards... Our Hard Landing Definition: 1) Significant Contraction In Manufacturing 2) Contraction In Services 3) Sustained Fall In Imports 4) Double-Digit House Price Declines 5) Banking Sector Bailout 6) Growing Expectations of CNY Weakness Source: BMI
  7. 7. Business Monitor International Latin America & Caribbean Given these global headwinds we prefer economies in 2012 that have policy ammunition to combat slower growth Based on this metric we divide the regional economies into three categories: 1. Those with the ammunition (if needed) – Chile, Brazil, Peru, Colombia, Mexico 2. Those who are fast running out of options – Argentina, Venezuela, Ecuador 3. Those with no domestic policy options – Most CentAm and Caribbean economies
  8. 8. Business Monitor International Those With Ammunition There are several regional economies Bps of Current hikes over with plenty of room to cut rates if growth Policy Rate last cycle cools aggressively Brazil 10.50% 375 Brazil and Chile have already embarked on rate cutting cycles, and we believe Chile 5.00% 475 Colombia and Mexico are likely to follow at Colombia 4.75% 175 some point in 2012 Mexico 4.50% 0 Peru 4.25% 300
  9. 9. Business Monitor International Those With Ammunition Public Sector External Debt, % GDP Although there has been significant fiscal stimulus since 2009, public Brazil40.0 Chile sector leverage is still very low by35.0 Colombia DM standards Mexico30.0 Peru25.0 With sovereign debt yields trading20.0 close to record lows, and CDS15.0 spreads well contained, these10.0 governments have access to debt 5.0 markets if required .0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: BMI, Respective Central Banks
  10. 10. Business Monitor International Those Who Are Fast Running Out Of Options We have long been concerned about economic trajectory for Venezuela, Argentina, and Ecuador We believe 2012 could prove a pivotal year for Venezuela and Argentina, with the potential to derail investors’ perceptions of the Latin American region as a whole
  11. 11. Business Monitor International Venezuela We believe the current fiscal and exchange rate regime can last until the election, thanks to massive debt issuance in 2011 and high oil prices, but few domestic policy options to significantly boost growth M1 Money Supply Growth, % chg y-o-y Core scenario: President Hugo 160 Chávez to remain in power 140 120 100  Implies continuation of 80 high inflation, with strong 60 possibility of another 40 20 destabilising devaluation 0 following the election -20 Oct-97 Oct-03 Oct-09 Oct-00 Oct-06 Apr-11 Apr-99 Apr-02 Apr-05 Apr-08 Jan-00 Jan-06 Jan-97 Jan-03 Jan-09 Jul-07 Jul-98 Jul-01 Jul-04 Jul-10 Source: BCV, BMI
  12. 12. Business Monitor International Argentina Fears of a devaluation prompted massive capital flight in the run up to last year’s election Government has had some success in restricting capital outflows, but dealing with symptoms rather than cause BADLAR Rate, % As yet no signs of attempts to address causes of rampant inflation and overvalued exchange rate Not conducive to attracting FDI, and without access to international capital markets government can only resort to printing money to stimulate growth Source: Bloomberg
  13. 13. Business Monitor International 3. Those With No Real Policy Tools There are many smaller economies in the region which have very little in the way of domestic economic buffers to deal with the external headwinds, which will exacerbate domestic problems Problems include some of the highest crime rates globally, weak fiscal frameworks, and in several cases cripplingly high debt burdens
  14. 14. Business Monitor International Central America Honduras, Guatemala & El Salvador: All suffering from severe fiscal weakness and militarisation of the drug war Nicaragua is currently attracting significant fixed investment, but fiscal consolidation unlikely following the re-election of Daniel Ortega Costa Rica - Fiscal Deficit, % of GDP Costa Rica’s fiscal decline continues, following government concessions to opposition demands for the 2012 budget Source: BMI, BCCR, f = BMI forecasts
  15. 15. Business Monitor International Caribbean Many Caribbean states are even more powerless than their CentAm counterparts because of:  Very High Debt Burden  Weak Growth Dynamics Sovereign Risk Rankings For BMI And S&P (November 2011 ) Our Core View is increasingly accepted by consensus: December 2011 S&P downgraded Bahamas and Jamaica, with warning for Barbados Source: BMI, S&P
  16. 16. Business Monitor International Real GDP Growth Rates, % 2010 2011e 2012f 2013f Barbados -.5 .9 1.3 2.0 Jamaica -1.2 1.5 1.4 1.4 El Salvador 1.4 1.4 1.7 2.2 Venezuela -1.4 3.2 2.3 2.3 Guatemala 2.8 2.4 2.7 3.2 Nicaragua 4.5 3.3 3.3 2.8 Honduras 2.8 4.8 3.4 4.0 Mexico 5.4 4.2 3.4 2.7 Costa Rica 4.2 3.6 3.6 3.5 Brazil 7.5 3.0 3.9 3.7 Argentina 9.2 7.0 4.1 4.2 Colombia 4.3 5.7 4.7 4.4 Chile 5.2 5.9 4.8 3.3 Peru 8.8 6.7 5.8 4.8 Panama 7.5 8.3 6.9 5.5 e/f = BMI estimated/forecasted, Source: Respective central banks and/or statistics agencies
  17. 17. Business Monitor International Q&A • If you would like to arrange an initial trial or a trial of additional content, please contact: • Contact: Erika Lockhart • Email: elockhart@businessmonitor.com • Phone: 646.368.1475 • Content: Country Risk, Financial Markets, and Industry Analysis (22 sectors) • Deliverables: Daily Analysis, Quarterly Reports, and Proprietary Databases 17

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