Increasing Opportunities: Latin American Economies Set for Growth in 2018
28 Jan 2018
The last quarter of 2017 surprised even the most optimistic observers. However, the positive performance of that period does not preclude a sense of uncertainty for 2018, a year that will likely prove decisive for the region.
Funnily enough, a number of factors made us think exactly the same one year ago. From the outset 2017 was going to be a challenging year, ushering in as it did the arrival of Donald Trump to power, commodity prices at medium to low levels, exchange rate volatility and the shadow of the Odebrecht corruption scandal. As the months went by, things started to look slightly better, at least for some of the region's powers.
Elections affirm Argentina’s liberal model, while US-Mexico trade remains stable
In the Argentine local elections in the second half of 2017, people reaffirmed their support for the model pursued by President Mauricio Macri. The Argentine government remains firmly committed to implementing its liberal reform agenda, joining the global trend of lowering taxes, and reforming its education sector and labour laws to gain flexibility and increase competitiveness. The energy and agriculture sectors are recovering pace, while the country is taking advantage of its status as a rising star and betting on technological entrepreneurship considerably more than others.
While Mexico is of course a consolidated power – it may overtake France to become the world’s ninth-largest economy – there remain important questions on the table. The renegotiation of NAFTA with its northern neighbours is an uncomfortable issue for the local business community. While it seems that 2017 has been a great year with regards to US-Mexico trade, President Trump's rhetoric remains the same. In the summer of 2018, Mexico will hold presidential elections, something that will undoubtedly calm investment ambitions until at least the second half of the year.
While commodity price rises raise confidence, elections spell uncertainty for Mexico, Brazil and Colombia
In fact, elections are perhaps the element that currently contributes the most to uncertainty in the region. Brazil and Colombia, in addition to Mexico, will both hold general elections, also in the middle of 2018. Brazil finally returned to the path of growth and finished the year with a positive 1% growth rate. The new rise in commodity prices could help maintain levels of income in the country, but the elections could be decisive for the superpower, as they were held back for too long by corruption and an excessive bureaucracy.
Having finishing the famous process of negotiation with the FARC, Colombia is set to focus on economic growth, but its revenue still depends largely on commodities and therefore the market remains volatile. The same applies to Peru, where prospects are slightly more optimistic. The Peruvian government has made a notable effort in public investment to counteract the drama of the torrential El Niño rains of 2017. Furthermore, the country can rely upon an optimistic business community, according to our recent OBG Business Barometer: Peru CEO Survey, as well as the Peruvian mining sector that keeps picking up.
Trade blocs bring renewed growth and dynamism to the region
One of the key issues for 2018 could be the relationship between regional powers. There is continued consolidation of trade blocs with the Pacific Alliance and Mercosur advancing, a dynamism that should be followed by others such as CARICOM, whose greater integration could facilitate the more rapid and diversified development of Caribbean markets such as Trinidad and Tobago. The development of the Trans-Pacific Agreement, now known as TPP11, is also a cause of excitement, as the bloc could incorporate the UK after Brexit. Furthermore, the focus of the most powerful markets in Latin America on the Asian continent, both through TPP11 and the Pacific Alliance, is excellent news for the region.
The World Bank recently forecast a 2% growth rate for Latin America, which would mean a doubling of last year’s performance. Trusting that the situation in Venezuela does not cause too much harm to neighbouring countries, this could be a positive year, and could bring uncertainty in the region to an end.