Latin America

A mixed year ahead for Latin American economies

The day of reckoning is coming for the Brazilian economy and it could be in 2015 — after Brazil’s presidential election, economist Armando Castelar Pinheiro said Wednesday.

Speaking at the University of Miami Center for Hemispheric Policy’s mid-year economic update on Latin America, Castelar said the Brazilian outlook for this year is low growth – perhaps around 2.3 percent — and inflation of at least 6 percent.

“It’s not a scenario that’s very bright, but neither is it a scenario of crisis,” said Castelar, who is coordinator of applied economic research at the Getulio Vargas Foundation’s Brazilian Economic Institute.

Currently, the government is pumping a lot of money into the economy and micromanaging some prices to foster demand and control inflation, which could be as high as 8 percent without such intervention, he said.

But Castelar said there’s a growing consensus in Brazil, which is South Florida’s largest trading partner, that the current economic course is not the correct one.

Brazil is near full employment, but as commodity prices fall and the demand from China and other Asian countries ebbs, Brazil needs to slow down the economy and cool the labor market to control inflation, he said. Incomes will have to drop somewhat in Brazil — a prospect that will not be popular — because commodity prices have fallen, Castelar said.

“I believe in 2015, there will be a major adjustment in the economy,’’ said Castelar.

It won’t come sooner because elections for president and most of Congress are scheduled for October 2014, and it’s unlikely there will be any major policy shifts before then, Castelar said.

In the meantime, the Brazilian leadership will have to deal with ongoing street protests, which were galvanized by an increase in bus fares but became expressions of discontent over corruption, poor public services and the billions the government is spending to prepare for the 2014 World Cup.

The longer the government delays policy changes and taking hard measures to control inflation such as raising interest rates, the more dramatic and complicated the adjustments will be, he predicted.

However, the economic outlook is more promising for the Andean region, said Santiago Mosquera, a director in the Latin American sovereigns group at Fitch Ratings.

Part of Colombia’s success story, he said, is the government’s ability “to create a welcoming environment for business.’’ Colombia’s mining and oil sectors also are performing well with oil production reaching the milestone of more than 1 million barrels a day.

He predicted growth of around 4 percent for Colombia in 2013.

In Peru, where growth has been averaging more than 6 percent over the past decade, he said the government has built up foreign reserves that will provide a strong buffer to any external shocks.

But Mosquera wasn’t as sanguine about Ecuador, where growth has also averaged 6 percent over the past two years. The government, he said, has been spending money almost as quickly as it comes in, leaving it more vulnerable to adverse external factors.

Chile also has had brisk growth in recent years, but the price of copper, its main export, has fallen 14 percent this year, affecting both growth and investment, said Kathryn Rooney Vera, an economic strategist and partner at Bulltick Capital Markets in Miami. Still, she said, the Chilean economy is well-diversified and remains fairly resilient with growth projected at around 4.1 percent this year.

Vera said Argentina faces several problems, the biggest being “deteriorating fiscal accounts and as a consequence the even further deteriorating and distorted foreign exchange market.

“The fiscal situation is getting worse and worse,” she said.

Still, the Argentine government will likely announce growth of around 4 percent in 2013, said Vera.

A way to resolve many of Argentina’s problems, Vera said, would be for the government to curb spending and stop printing pesos.

Carlos Serrano, chief economist at BBVA Bancomer in Mexico City, said the Mexican economy is expected to slow slightly. Economic growth in 2013 and 2014 will likely be slightly less than 3 percent, he said.

Among the factors playing into slower growth, he said, are the slowdown in U.S. manufacturing, which is closely linked to the Mexican economy, and the transition to a new government in Mexico.

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