A mixed economic outlook

The pace of infrastructure development and growth in LatAm is largely driven by the political environment and the price of commodities in the region. Maria Jose Cordovez, head of engineering, Latin America at Helvetia Latin America, offers her view on the outlook of the region’s main economies.

Mexico

Presidential elections will be held in July 2018 and provide a six-year term. According to market intelligence, the largest risk to the fiscal outlook of Mexico is the election of the populist leftist candidate, Manuel Lopez Obrador.

Obrador has already vowed that if elected he will cancel the new Mexico City Airport project and reverse the 2014 Mexican Energy Reform. In the background lies uncertainty over the future of the US-Mexico trade relationship with the North American Free Trade Agreement and the effect of the Trump administration’s policies towards Mexico.

These uncertainties have restrained the industrial and services sectors, contributing to deceleration in GDP growth in 2017. The 2018 real GDP growth is forecast at 2 percent.

The Mexican peso appears to have regained its footing after Trump’s election and is expected to remain around Mex$18 to 19 to the US dollar during 2018. Due to two recent large offshore discoveries there are expectations of growth for Mexican oil production for the first time in a decade.

The second round of Mexico’s oil and gas licensing process has been successful in spite of low oil prices, with further private investment predicted. The president, Enrique Pena Nieto, started his six-year term with a $394 billion infrastructure programme, but few of the expected mega-projects came to fruition.

Government spending will be contained except for a few projects just before the election in order to gain support. The two main factors that will ultimately influence the forecast are the Mexican election and Mexico’s relationship with the US.

Argentina

Mauricio Macri won the presidency in 2015, ending the populist leftist rule in Argentina. Hopes for quick change were very high but Argentina is very slowly getting out of its recession.

Measures were taken to eliminate the obstacles in securing money in and out of the country and to pay foreign debt. However, the country appears to be divided between followers of Macri and supporters of ex-president Cristina Kirchner, and this will continue into 2018 as the latter is considering a senate run which may result in destabilisation of Macri’s government.

Inflation is now under control but still at 20 percent per year, and unemployment is still a big issue hovering around 9 percent. The Argentine peso is expected to finish the year at around ARS 16.21 to the US dollar, a bit higher than the ARS 15 to the US dollar from 2016. Real GDP growth for 2018 is 3.2 percent.

Public infrastructure spending is expected to continue in the upcoming years with a surge in the Buenos Aires region for transportation. Renewable energy projects are also being announced. The central question is whether these new projects are going to remain as announcements or actually happen.

The main factor that will ultimately influence the forecast for Argentina is the October 2017 municipal elections that can help Macri’s ruling coalition in supporting his reforms.

Brazil

Corruption has plagued politics in Brazil in recent years and continue with the current president Michel Temer. Corruption scandals have affected various projects in the power sector and in other countries.

Presidential elections will be held in 2018 and the next government has an opportunity to address rising pension obligations, public spending and public debt. The current Brazilian recession and political crisis have led to several tenders being postponed and investments in infrastructure have decreased.

Brazil’s economy contracted by 3.6 percent in 2017 and the GDP growth is forecast at 0.35 percent. New oil and gas reforms are designed to attract new investments and counter the substantial recession suffered by the Brazilian energy sector.

The main factors that will influence the forecast for Brazil are the upcoming elections and the reforms taken by the next government to reduce debt and fight corruption.

Maria Jose Cordovez is the head of engineering, Latin America at Helvetia Latin America. She can be contacted at:  mariajose.cordovez@helvetia.com

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