LatAm recovery strengthens as election cycle starts

Incoming data suggest that growth momentum is largely holding up across the Latin American economy and the recovery remains firmly underway, according to data provider FocusEconomics.

Analysts estimate that gross domestic product (GDP) in the region will expand 1.6% annually in the third quarter, exceeding the second quarter’s 1.1% increase.

If confirmed, the result would mark the fastest growth rate since the first quarter of 2014.

Although official third quarter GDP figures are still outstanding from the majority of economies, growth is expected to have picked up almost across the board.

Regional giants Argentina and Brazil are seen as having gained steam as their economies emerge from deep recessions. In Brazil, low inflation and improving labour market dynamics are supporting household spending, while painful economic reforms are finally beginning to bear fruit in Argentina.

However, major player Mexico defied the regional trend, and a preliminary estimate revealed that growth lost some momentum in the third quarter. High inflation and disruptions from two earthquakes in September affected the result.

At the same time, robust external demand and healthy tourism revenues propped up growth. Meanwhile, Venezuela’s economy continues in free-fall, although a lack of official economic data makes the full extent of the recession difficult to judge, according to FocusEconomics.

In the political arena, the region’s election cycle kicked off with a key mid-term legislative election in Argentina on October 22. President Mauricio Macri’s coalition made broad gains, including in the five largest cities. The result should provide momentum to his ambitious reform agenda, which is aimed at shrinking the government’s chronic fiscal deficit and enacting pro-business policies.

Next on the agenda, Chile will go to the polls in a presidential election on November 19. Early polls point to a victory for centre-right former president Sebastian Piñera, who is seen as pro-business and would be likely to lead to a greater government focus on boosting competitiveness and investment.

After a tough 2016, the Latin American economy is expected to have returned to growth in 2017, expanding 1.4%. Next year, stronger recoveries in heavyweights Argentina and Brazil will boost growth further. However, political uncertainties are plaguing the outlook as votes are set to take place in Brazil, Colombia, Mexico and Paraguay. NAFTA (Tratado de Libre Comercio de América del Norte [TLCAN]) renegotiations are also clouding the outlook for the Mexican economy. LatinFocus Consensus Forecast analysts see regional GDP increasing 2.4% in 2018, and 2.7% in 2019.

The 2018 outlook reflects stable growth prospects for five of the 11 economies surveyed including Brazil and Mexico. Growth prospects improved for Argentina, Ecuador, Paraguay and Uruguay while the outlooks for Colombia and Venezuela were downgraded.

Peru is expected to be the region’s fastest-growing economy in 2018, with projected growth of 3.9%, followed closely by Bolivia and Paraguay. At the other end of the spectrum, Venezuela is seen contracting 3.6% and Ecuador is seen growing 1.3%.

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