Latin America will only enjoy lacklustre growth in 2014 as a result of the headwinds facing its two largest economies, according to HSBC.
The bank has predicted that this year the region will just average the same 2.4% growth it achieved in 2013. It has also made downward revisions to its GDP forecasts of the region’s two biggest economies, Mexico and Brazil.
While it forecasts Mexico to grow 3.7% in 2014, up from 1.1% last year, this is down on its original prediction of 4.1%. As for Brazil, it suggests growth will slow to 1.7% this year (a fall on its initial forecast of 2.2%), dropping further to 1.2% in 2015.
HSBC attributed Mexico’s downward revision to “an expected slowdown in US growth in the first half of 2014”, which had been exacerbated by a severe winter there that had led to temporary plant closures, which delayed Mexican exports.
It also pointed out that domestic consumption had been hit by a VAT rise, while Mexican government spending had grown less than expected, delaying an anticipated fiscal stimulus. But it said that the revision represented a “delay” rather than a “permanent reduction” in the scope of Mexico’s recovery.
With regards to Brazil, HSBC highlighted “sticky inflation” and investor concerns about its budget and trade deficits, which “could mean more fiscal austerity”. It also said there was a clear indication that credit from the Brazilian Development Bank and the commercial state-owned banks will be more moderate in 2014.
“Another headwind is the impact on Brazilian exports of Argentina’s lower growth, currency depreciation and import controls,” HSBC noted. Around 8% of Brazil’s exports go to its neighbour and 90% of them are manufactured goods, largely motor vehicles and parts.
Meanwhile, a severe drought in southeast Brazil and the mid-west regions has reduced reservoirs to record low levels, bringing the risk of energy rationing.
Sally Percy is editor of The Treasurer