Americas

Latin American economic analysts: a lackluster 2015 but hope for 2016

Ailing Brazil — In this June 10, 2015 photo, new trucks and parts sit at a Mercedes-Benz park in Sao Bernardo do Campo, Brazil. Mercedes-Benz said in a statement that “the sharp drop in bus and truck sales” had forced it last month to rescind the contracts of 500 workers who had been furloughed several months earlier.
Ailing Brazil — In this June 10, 2015 photo, new trucks and parts sit at a Mercedes-Benz park in Sao Bernardo do Campo, Brazil. Mercedes-Benz said in a statement that “the sharp drop in bus and truck sales” had forced it last month to rescind the contracts of 500 workers who had been furloughed several months earlier. AP

There are few brights spots around Latin America where a combination of the end of the commodities bonanza, a slow world economy, low oil prices for producing nations, sub-par growth in China and political uncertainty have all taken a toll this year.

But analysts at the University of Miami Center for Hemispheric Policy’s Latin America Economic Forecast conference said Thursday that they expected economies would pick up in 2016.

That’s especially true in Argentina, said Kathryn Rooney Vera, a strategist and partner at Bulltick Capital Markets. Regardless of the winner of Argentina’s presidential election in August, the winner is expected to improve upon President Cristina Fernández’s economic policies, she said.

The markets would most favorably view a win by pro-business Mauricio Macri, she said, but he is running a distant second. She said he could be expected to roll back Fernández’s policies, which have led to double-digit inflation, a stagnant Argentine economy and scant access to global credit markets.

If frontrunner Daniel Scioli, of the ruling Justicialist Party, wins, it “decreases the chances of a quicker resolution” of Argentina’s economic woes, but she noted that he is a “pragmatist.” He has chosen Carlos Zannini, considered a member of the brain trust behind Fernández’s “anti-market” policies as his running mate, she said.

Still, she said that the Argentine economy has perked up a bit from a low point last fall when inflation was running at 40 percent and reserves had fallen to $27 billion. While Bulltick doesn’t expect any growth in the Argentine economy this year, it is forecasting economic growth of 2.5 percent in 2016.

This year’s economic outlook also is grim in Brazil, the region’s largest economy. It’s been rocked by a corruption scandal involving Petrobras, the huge state-controlled oil company, and the so-called Operation Carwash investigation as well as a water shortage crisis. Dozens of high-ranking executives have been arrested as part of the probe and hundreds of thousands of Brazilians have marched in major cities calling for President Dilma Rousseff’s impeachment.

“President Dilma Rousseff began her [second] term in office in a perfect political storm. Since then, just about everything that could go wrong has gone wrong,” said Christopher Garman, head of country analysis for the Eurasia Group. He said that the Eurasia Group gives Rousseff a 20 percent probability of not finishing her term.

Where Brazil’s corruption probe will end up is the country’s “single largest economic liability,” said Garman.

Meanwhile, unemployment has reached 8 percent and the Central Bank of Brazil is forecasting gross domestic product will continue to decline and contract 0.5 percent this year.

But the good news, said Garman, is that Rousseff has selected “a very credible minister of finance,” Joaquim Levy, for her second term and Brazil has undertaken “constructive policy responses.” Still, Garman expects to see a “long and painful course correction” in Brazil. And, he said, that might not be enough to salvage Rousseff politically.

This year has been a “write-off, a horrible year” for Brazil but the idea is to get the economy growing again in 2016, said Joydeep Mukherji, managing director of Standard and Poor’s Sovereign Ratings Group.

Even though the Chinese economy is expected to grow only around 7 percent in 2015 — lackluster for the economic powerhouse — and lower commodity prices have taken their toll on Latin America, “we still see fairly strong trade ties” with the region, said Margaret Myers, director of the China and Latin America program at the Inter-American Dialogue.

Chinese investment in Latin America, which is driven mainly by China’s quest for food security and energy security, also is growing, she said, and China has continued to be a critical source of financing in Venezuela, Ecuador, Brazil and Argentina.

Here’s a quick look at what analysts said about other Latin American economies:

▪  Venezuela — Despite Venezuela’s deteriorating economic condition, Rooney Vera said Bulltick doesn’t expect a default this year. “We think Venezuela wants to pay (its debts). We think willingness is intact; the question is capacity,” she said.

The slight recovery in oil prices, she said, has been “a saving grace for Chavismo.”

▪  Chile — Growth is projected at 2.8 percent — somewhat of a recovery, said Rooney Vera. “A lot will depend on policy,” she said.

▪  Mexico — “The macro-economic picture in Mexico is quite optimistic,” said Manuel Suárez-Mier, economist in residence at American University. Inflation at 2.88 percent is the lowest since 1968 and the country has reserves of about $200 billion. But he said the big question is why isn’t the economy growing. Recent energy reform is a “major, major breakthrough,” he said, fueling hope for 2016.

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