Latin America Outlook 4th QUARTER 2017
Latin America Outlook 4 Q17 Main messages 1. Global growth continues increasing and becomes more widespread . Financial markets still favor emerging economies. Global risks still remain alive. 2. Growth recovers in Latin America, but will still be low in 2017-18. Growth is revised up 0.3pp in 2017 to 1.1% and remains unchanged at 1.6% in 2018. Growth in 2018 will be driven by the external sector and infrastructure investment in Argentina, Colombia and Peru. 3. Inflation continues falling in South America and starts to do so in Mexico, driven by stable exchange rates, weak demand and, in some countries, lower food prices. Consequently, central banks will cut interest rates in South America in coming months and at end-2018 in Mexico 4. External risks for Latam decrease somewhat, apart from the possible overvaluation in financial markets. On the internal front, political noise and uncertainty also moderate, but remain high.
Latin America Outlook 4 Q17 GLOBAL Positive global momentum gets reinforced, but still with downside risks
Latin America Outlook 4 Q17 Positive global momentum gets reinforced Stable and strong A more Weak core 2 growth synchronized inflation recovery But some decoupling Some signs of between optimists soft Improving in wage gains, but data and not-so-strong emerging doubts about its hard data economies sustainability Central banks on Low financial Downward path to volatility risks normalization Tailwinds to wane Reduced in High uncertainty and gradually China and different speed in increased in US and Europe the US in the short run 4
Latin America Outlook 4 Q17 Global growth: strong and stable in 2H17 Global GDP growth Confidence indicators improve Forecasts based on BBVA-GAIN model (%, qoq) significantly, and point to a more 1,2 positive outlook than hard data 1,0 Trade grows strongly and industrial production continues recovering 0,8 Signs of stronger consumption 0,6 despite waning tailwinds 0,4 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 CI 20% CI 40% CI 60% Point Estimates Period average Source: BBVA Research 5
Latin America Outlook 4 Q17 A more synchronized recovery of global growth across regions Index of growth synchronization between developed and Developed markets: emerging economies - Strong US rebound. - Positive surprises in Europe 70 Increased growth in DM Emerging: and EM 60 • Slight deceleration in China, Stable growth in Increased growth in DM EM, deceleration / lower growth in EM though milder than expected. Still in DM 50 supporting growth in rest of Asia. • Russia and Brazil recover, and do 40 not drag global growth 30 • Growth improves in Latam 20 Growth gets more support from economic policies 10 0 2T10 4T10 2T11 4T11 2T12 4T12 2T13 4T13 2T14 4T14 2T15 4T15 2T16 4T16 2T17 Synchronization index is the inverse of the standard deviation of quarterly growth across countries. Lower volatility is associated with higher synchronization of global growth. 6 Source: National sources, Markit Economics and BBVA Research
Latin America Outlook 4 Q17 No warning signs regarding core inflation US and Euro area: wages (%yoy ) 4.0 Despite growth and tighter labor market, core inflation remains low 3.5 US average 1993-2017 Doubts whether recent wage gains 3.0 will persist. Inflationary pressures 2.5 remain low. Euro area average1996-2017 2.0 Uncertainty about drivers of inflation: Permanent or temporary changes? 1.5 1.0 Caution at central banks, especially in developed markets. Some more 0.5 policy space in emerging economies 0.0 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 Eurozone USA 7 Source: BBVA Research
Latin America Outlook 4 Q17 Central banks on track for a gradual policy normalization Debt purchases to be pared down in 2018 , but no interest rate hikes are Balance sheet FED expected before mid-2019 normalization starting in October and next interest rate hike in December, followed by two more hikes in 2018 ECB High uncertainty • • In US , due to subdued inflation and In Euro area , bias toward more expected changes to FOMC gradual tapering (strong euro) and composition in 2018 delaying interest rate hikes (low inflation) 8
Latin America Outlook 4 Q17 Financial markets still favor emerging economies Index of regional asset relocation (standardized deviation relative to historical mean) 1.25 1.00 developed markets Weak dollar and low interest rates Preference for 0.75 support search for yield and emerging market assets 0.50 0.25 Global liquidity will remain high, 0.00 given gradual policy normalization emerging markets -0.25 Preference for emergentes by Fed and ECB. But these tailwinds -0.50 will start to wane. -0.75 -1.00 -1.25 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 9 Source: BBVA Research y Bloomberg
Latin America Outlook 4 Q17 Growth in Europe and China revised up. Upward bias in Latin America EUROZONE US 2017 2018 2017 2018 CHINA 2,1 2,2 2,2 1,8 2017 2018 6,7 6,0 MEXICO 2017 2018 2,2 2,0 WORLD SOUTH AMERICA Revised up 2017 2018 2017 2018 3,4 3,4 Unchanged 0,6 1,5 Revised down Source: BBVA Research. South America includes: Argentina, Brazil, 10 Chile, Colombia, Mexico, Paraguay, Peru, Uruguay and Venezuela
Latin America Outlook 4 Q17 US: sustained growth despite political uncertainty and hurricanes US: GDP growth Hurricanes will have a limited (%) impact on activity and thus we keep unchanged our growth 3.5 forecasts for 2017-18 3.0 2.9 2.6 Pending issues: 2.5 • Tax reform still to be fully spelled out 2.0 • Uncertainty about economic policy 2.2 2.1 1.5 1.5 • Some signs of financial vulnerability 1.0 • Increased geopolitical risk 0.5 0.0 2014 2015 2016 2017 2018 Current Previous Source: BBVA Research and BEA 11
Latin America Outlook 4 Q17 China: more favorable outlook in the short run China: GDP growth Slight upward revision of our 2017 (%) growth forecast, due to better incoming data on 1S17 8.0 7.5 7.3 Deceleration in 2018 due to lower 6.9 7.0 impulse from economic policies 6.7 6.7 and exchange rate appreciation 6.5 6.0 6.0 Uncertainty about the outcome of the upcoming Communist Party 5.5 Congress 5.0 4.5 Long-run risks remain, even though financial vulnerabilities 4.0 have improved given recent 2014 2015 2016 2017 2018 regulatory measures. Current Previous Source: BBVA Research and CEIC 12
Latin America Outlook 4 Q17 Euro area: higher growth due to stronger domestic demand Euro area: GDP growth Consumption and investment (%) strengthen, with limited fallout from euro appreciation 2.5 Inflation increases slowly towards 2.0 1.9 1.8 ECB target 2.2 1.5 1.4 1.8 Monetary policy normalization will allow it to continue supporting growth 1.0 Political and banking risks remain 0.5 (Spain, Italy, support to European project, brexit) but they become 0.0 more contained. 2014 2015 2016 2017 2018 Current Previous 13 Source: BBVA Research and Eurostat
Latin America Outlook 4 Q17 Oil and soybean prices on track towards their long-run equilibrium . Copper prices increase temporarily. BRENT OIL SOYBEANS COPPER (USD/B) (USD/mT) (USD/lb) 3,3 600 120 3,1 550 100 2,9 2,7 500 80 2,5 450 60 2,3 2,1 40 400 1,9 20 350 1,7 0 1,5 300 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016 1Q2017 3Q2017 1Q2018 3Q2018 1Q2019 3Q2019 1Q2020 3Q2020 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016 1Q2017 3Q2017 1Q2018 3Q2018 1Q2019 3Q2019 1Q2020 3Q2020 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016 1Q2017 3Q2017 1Q2018 3Q2018 1Q2019 3Q2019 1Q2020 3Q2020 Forecast in July 2017 Forecast in July 2017 Forecast in July 2017 Forecast in October 2017 Forecast in October 2017 Forecast in October 2017 Source: BBVA Research and Bloomberg Oil and soybean prices maintain our view of gradual Copper prices increased strongly in the last months driven by convergence towards long-run equilibrium prices. We still financial flows, which should abate gradually going forward. expect Brent oil prices to converge towards 60USD/b. We keep unchanged our view for long-term prices. 14
Latin America Outlook 4 Q17 Global risks: rebalancing from China to US in the short run Sep Jun • Deleveraging risk: still high but more contained in the short run (more gradual economic slowdown & authorities strategy): - Likelihood in the short run + • Need to reform state-owned enterprises • Managing a soft-landing CHN • Political controversy & risk of cyclical slowdown US • Financial instability risk: signs of overvaluation in some assets. EZ • Fed’s exit risk: low but high uncertainty on interest rate path • Political and banking concerns: more contained except Spain • ECB’s exit risk: low; very gradual exit starting with tapering in 2018 - Impact + Upward bias Downward bias 15 **Other risks: Geopolitics (North Korea); Protectionism
Latin America Outlook 4 Q17 LATAM Growth recovers, but it is still low
Recommend
More recommend
