Latin America Outlook 2nd QUARTER 2017 Latin America Outlook 2Q17 - - PowerPoint PPT Presentation

▶
latin america outlook
SMART_READER_LITE
LIVE PREVIEW

Latin America Outlook 2nd QUARTER 2017 Latin America Outlook 2Q17 - - PowerPoint PPT Presentation

Sep 18, 2023 297 likes •568 views

Latin America Outlook 2nd QUARTER 2017 Latin America Outlook 2Q17 Main messages 1. Global growth keeps increasing , and uncertainty about US policies starts to fade. Nevertheless, global risks remain. 2. The end of GDP deceleration for Latin

slide-1
SLIDE 1

Latin America Outlook

2nd QUARTER 2017

slide-2
SLIDE 2

Latin America Outlook 2Q17

Main messages

1. Global growth keeps increasing, and uncertainty about US policies starts to fade. Nevertheless, global risks remain. 2. The end of GDP deceleration for Latin America. Regional growth will increase from -1.4% in 2016 to 1.1% in 2017 and 1.8% in 2018. Yet, it will remain below potential growth, which is closer to 3%. 3. Inflation will continue to decrease in South America, but will rise in Mexico, though less than expected 3 months

  • ago. We anticipate further interest rate cuts in South America

(deeper in Brazil), and they will also be implemented in Argentina and Peru. On the other hand, Mexico will continue hiking rates, but less aggressively than expected. 4. Risks for Latam are tilted to the downside. Short-term risks coming from China and US diminish, though structural, long- term risks in China increase. Domestic risks in the region continue to stem from political noise and delays in infrastructure projects.

slide-3
SLIDE 3

Latin America Outlook 2Q17

GLOBAL

Stronger growth, but still with significant risks

slide-4
SLIDE 4

Latin America Outlook 2Q17 4

Main trends continue … Recovery of industrial production and trade still underway Low volatility in financial markets Headline inflation continues to rise in advanced economies, but core inflation remains stable … and central scenarios become more likely A strong stimulus to US economy looks less likely… …but so does scenarios with strong protectionism Central banks in developed countries lean towards policy normalization

Positive global momentum

slide-5
SLIDE 5

Latin America Outlook 2Q17

Global GDP growth

Forecasts based on BBVA-GAIN model (%, qoq)

Confidence indicators remain very high, although hard data still do not capture all the improvement in sentiment China and developed economies show sign of strong

  • growth. However, other

emerging economies show mixed signals

Source: BBVA Research

Global growth continues to increase at beginning of 2017

5

0.4 0.6 0.8 1.0 1.2 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

IC 20% IC 60%

GDP Growth Average

IC 40%

slide-6
SLIDE 6

Latin America Outlook 2Q17

BBVA Financial Stress Index

(normalized)

Volatility has decreased despite uncertainty about economic policies Monetary and fiscal stimulus mask some underlying weakness Europe has been the exception, with some increase in sovereign spreads, linked to elections in France and the political outlook for the region as a whole

Financial stress remains low

Source: BBVA Research 6

  • 2.0
  • 1.0

0.0 1.0 2.0 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Latam Asia Developed

slide-7
SLIDE 7

Latin America Outlook 2Q17 7

Official interest rates in the US (Fed) and Eurozone (ECB)

(pp)

Source: BBVA Research, FED and ECB

0.0 0.5 1.0 1.5 2.0 2.5 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 FED ECB

ECB QE tapering ECB End of QE Fed continues to increase interest rates, though is still cautious about the economic outlook. The ECB is to start discussing its exit strategy, but very cautiously.

Central banks on the way to policy normalization

slide-8
SLIDE 8

Latin America Outlook 2Q17

US 2017 2.3 2018 2.4 LATIN AMERICA 2018 1.8 EURO AREA CHINA 2017 1.7 2018 5.8 2018 1.7 2017 1.1 2017 6.3

Source: BBVA Research. Latin America includes: Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay and Venezuela

WORLD

2018

3.4

2017

3.3

Revised down Increased Unchanged

Global growth revised up

8

slide-9
SLIDE 9

Latin America Outlook 2Q17

China: GDP growth

(%)

We revised up our growth forecasts for 2017-18, due to incoming data and a fiscal impulse. Gradual deceleration underway But medium-term risks are still significant:

  • Rebalancing of growth towards

services and consumption has stalled

  • Policy missteps could lead to a

disorderly deleveraging

Source: BBVA Research and CEIC

China: renewed recovery with old engines

9

7.3 6.9 6.7 6.3 5.8 3 4 5 6 7 8 2014 2015 2016 2017 2018 Forecast April 2017 Forecast February 2017

slide-10
SLIDE 10

Latin America Outlook 2Q17

Growth increases in 2017 given pick up in investment. However, private consumption is expected to slow down Risks stemming from economic policy continue despite a softer tone in the last months

Source: BBVA Research and BEA

US: GDP growth

(%)

US: diminished prospects of a pro-growth fiscal impulse

10

2.4 2.6 1.6 2.3 2.4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2014 2015 2016 2017 2018 Forecast April 2017 Forecast February 2017

slide-11
SLIDE 11

Latin America Outlook 2Q17

We maintain our view of gradual convergence of commodity prices to their long-run equilibrium levels

11 Source: BBVA Research and Bloomberg

BRENT OIL

(USD/B)

SOYBEANS

(USD/mT)

COPPER

(USD/lb) Oil prices will continue to get support from OPEC production agreement, as well as increase in demand. Copper prices will benefit from stronger demand and also supply disruptions. No significant changes in our view for long-term commodity

  • prices. Forecasts mostly unchanged for oil and soybeans

relative to February.

20 40 60 80 100 120 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016 1Q2017 3Q2017 1Q2018 3Q2018 1Q2019 3Q2019 1Q2020 3Q2020 Forecast February 2017 Forecast April 2017 300 350 400 450 500 550 600 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016 1Q2017 3Q2017 1Q2018 3Q2018 1Q2019 3Q2019 1Q2020 3Q2020 Forecast February 2017 Forecast April 2017 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016 1Q2017 3Q2017 1Q2018 3Q2018 1Q2019 3Q2019 1Q2020 3Q2020 Forecast February 2017 Forecast April 2017

slide-12
SLIDE 12

Latin America Outlook 2Q17

Global risks most relevant for Latin America are related to US policies and rebalancing in China

12

3 2 4 1

Lingering uncertainty about economic policies to be implemented in US, especially trade policies Policy stimulus in China to support investment could delay and slow down reforms to reduce structural imbalances Risks stemming from monetary policy normalization, especially in the US Elections in France and Italy in (the unlikely) case that Eurosceptic platforms prevail

slide-13
SLIDE 13

Latin America Outlook 2Q17

LATAM

A heterogeneous recovery

slide-14
SLIDE 14

Latin America Outlook 2Q17

Financial markets continue to recover in Latam, including in Mexico

Asset prices and exchange rates continued to see significant year- to-date gains, driven by:

  • Diminished worries about US

policies

  • A gradual approach to Fed rate

hikes

  • Stronger global growth
  • Increased commodity prices
  • Recovery of growth in some

countries

Latam asset prices: percent change since the US election *

14 Source: BBVA Research, Haver Analytics and DataStream * Change between November 7 and April 14. Exchange rate: local currency per

  • USD. In this case, an increase signals a depreciation. Country risk premium: EMBI.
  • 30
  • 20
  • 10

10 20 30 ARG BRA CHI COL MEX PAR PER URU Exchange Rate Stock exchange Country risk premium

slide-15
SLIDE 15

Latin America Outlook 2Q17

Stable or mildly depreciating exchange rates, going forward

Exchange rates appreciated in most countries since beginning of 2017. Strong recovery in Mexico We expect a mild depreciation of exchange rates going forward given easier monetary policy in South America, diverging from Fed’s tightening Some room for further appreciation in Mexico in the short run. Chile and Colombia may also see appreciation in 2018

15 Source: BBVA Research and Haver

Exchange rates to the USD

(Index Dec 2015=100)

70 90 110 130 150 170 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 ARG BRA CHI COL MEX PAR PER URU Forecast Actual depreciation vis-à-vis USD

slide-16
SLIDE 16

Latin America Outlook 2Q17

Confidence indicators recover in Brazil and Mexico, but remain pessimistic throughout the region

16 Fuente: BBVA Research y Haver

Latam: Confidence indicators for households and firms

(values above 50 pts indicate optimism)

Drop in household confidence in Colombia, after VAT and income tax hikes. Significant confidence fall in Peru after corruption cases linked to Odebrecht case and the negative impact of the “coastal El Niño” In Mexico, confidence recovers after softer US tone towards

  • trade. Private sector confidence in Brazil recovers after fiscal

reform and a significant fall in inflation.

20 25 30 35 40 45 50 55 60 65 Jan-15 Jul-15 Jan-16 Aug-16 Mar-17 Jan-15 Jul-15 Jan-16 Aug-16 Mar-17 Jan-15 Jul-15 Jan-16 Aug-16 Mar-17 Jan-15 Jul-15 Jan-16 Aug-16 Mar-17 Jan-15 Jul-15 Jan-16 Aug-16 Mar-17 Jan-15 Jul-15 Jan-16 Aug-16 Mar-17 ARG BRA CHI COL MEX PER Consumer Producer OPTIMISM PESSIMISM

slide-17
SLIDE 17

Latin America Outlook 2Q17

End of GDP deceleration in Latam, but growth remains below potential

Latin America leaves 4-year deceleration behind it Stronger growth in 2017-18 driven by:

  • External sector, supported by

more favorable terms of trade and stronger global growth

  • Investment, especially in places

like Argentina and Colombia

Growth in 2017-19 still below potential, which is closer to 3%

17 Source: BBVA Research * Weighted average of Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Mexico, Uruguay and Venezuela

Latam: GDP growth

(%)

2.8 2.9 0.9

  • 0.3
  • 1.4

1.1 1.8 2.4

  • 5.0
  • 4.0
  • 3.0
  • 2.0
  • 1.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 2012 2013 2014 2015 2016 2017 2018 2019 Latam* Andean Brazil Mexico

slide-18
SLIDE 18

Latin America Outlook 2Q17

Recovery under way in Argentina. Brazil leaves recession

  • behind. Mexico will decelerate less than anticipated.

18

Latam countries: GDP growth

(%)

Source: BBVA Research

Recent data show the recovery is already under way in Argentina and activity is bottoming out in Brazil. Economic outlook is less challenging for Mexico, as the new US administration seems to be softening its stance on trade. Downward revision to growth in Colombia and Peru, due to weak incoming data and infrastructure delays. In addition, Peru suffers the effects of the “coastal El Niño”

  • 5
  • 4
  • 3
  • 2
  • 1

1 2 3 4 5 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 ARG BRA CHI COL MEX PAR PER URU Latam Mercosur Pacific Alliance Apr-17 Feb-17

slide-19
SLIDE 19

Latin America Outlook 2Q17

2 4 6 8 10 12 14 16 18 20 5 10 15 20 25 30 35 40 45 50 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18 Argentina (left) Brasil Chile Colombia México Paraguay Perú Uruguay Forecast Inflation target

Inflation continues to abate in South America and will increase less than anticipated in Mexico

19

Latam: inflation and central bank target ranges

(%, yoy)

Source: BBVA Research

Recent exchange rate appreciation and weak demand effected a lower inflation in South America, except (temporarily) in Argentina and Peru. Inflation will continue to come down going forward. In Mexico, inflation continued to increase, given past depreciation and fuel price hikes. But recent appreciation will moderate future inflation increases.

slide-20
SLIDE 20

Latin America Outlook 2Q17

Reduction of interest rates in South America will mark decoupling with Federal Reserve

20

Latam: official interest rates

(%)

Source: BBVA Research and Haver

Interest rate cuts will continue in coming months in South

  • America. Argentina and Peru will also cut rates as inflation

eventually comes down later in 2017. Mexican central bank will likely hike rates going forward, in line with the Fed. But policy tightening will be less severe than anticipated three months ago.

2 4 6 8 10 12 14 16 5 10 15 20 25 30 35 40 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 . ARG (left) BRA CHI COL MEX PAR PER Actual Forecast

slide-21
SLIDE 21

Latin America Outlook 2Q17

Fiscal deficits will continue to shrink, except (temporarily) in Peru

We continue to expect Brazil and Argentina to meet their primary deficit targets. Fast reduction in interest rates in Brazil induce a downward revision to our forecasts for headline fiscal deficit Fiscal deficit in Colombia and Peru to increase above expectations.

  • In Colombia, fiscal council allows for

more fiscal space as current account risks diminish

  • In Peru, fiscal deficit would be higher

than anticipated, to address emergency and reconstruction expenditure (deviation allowed by the fiscal rule)

21 Source: BBVA Research and Haver

Latam: fiscal balance

(%, GDP)

  • 10
  • 9
  • 8
  • 7
  • 6
  • 5
  • 4
  • 3
  • 2
  • 1

2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 ARG BRA CHI COL MEX PAR PER URU Latam Apr-17 Feb-17

slide-22
SLIDE 22

Latin America Outlook 2Q17

Current account vulnerability continues to abate in most countries

External deficits continue to shrink in countries with the widest gap, like Colombia Gaps shrink driven by past exchange rate depreciation, increasing terms of trade and global growth Nevertheless, stronger growth in 2017 will slow down external adjustment as imports recover

22 Source: BBVA Research and Haver

Latam: current account balance

(%, GDP)

  • 5
  • 4
  • 3
  • 2
  • 1

1 2 3 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 ARG BRA CHI COL MEX PAR PER URU Latam Apr-17 Feb-17

slide-23
SLIDE 23

Latin America Outlook 2Q17

Main messages

1. Global growth keeps increasing, and uncertainty about US policies starts to fade. Nevertheless, global risks remain. 2. The end of GDP deceleration for Latin America. Regional growth will increase from -1.4% in 2016 to 1.1% in 2017 and 1.8% in 2018. Yet, it will remain below potential growth, which is closer to 3%. 3. Inflation will continue to decrease in South America, but will rise in Mexico, though less than expected 3 months

  • ago. We anticipate further interest rate cuts in South America

(deeper in Brazil), and they will also be implemented in Argentina and Peru. On the other hand, Mexico will continue hiking rates, but less aggressively than expected. 4. Risks for Latam are tilted to the downside. Short-term risks coming from China and US diminish, though structural, long- term risks in China increase. Domestic risks in the region continue to stem from political noise and delays in infrastructure projects.

slide-24
SLIDE 24

Latin America Outlook 2Q17

ANNEX

slide-25
SLIDE 25

Latin America Outlook 2Q17

Latin America GDP growth forecasts

25 f = forecast

GDP (%yoy) 2014 2015 2016 2017f 2018f

Argentina

  • 2.5

2.6

  • 2.3

2.8 3.0

Brazil

0.5

  • 3.8
  • 3.6

0.9 1.8

Chile

1.9 2.3 1.6 1.6 2.4

Colombia

4.4 3.1 2.0 2.1 2.7

Mexico

2.3 2.6 2.1 1.6 2.0

Paraguay

4.7 3.0 4.1 3.3 3.7

Peru

2.4 3.3 3.9 2.5 3.9

Uruguay

3.2 0.4 1.4 1.9 3.0

Mercosur

  • 0.4
  • 2.6
  • 4.4

0.5 1.4

Pacific Alliance

2.6 2.7 2.2 1.8 2.4

Latin America

0.4

  • 1.3
  • 2.7

0.9 1.8