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Latin America Macroeconomic Quarterly Update
Wednesday, 1st July 2020
Disclaimer
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH
and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings
analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.
2
Contents
1. Global Overview: Global Economy To Contract Sharply
In 2020
2. Latin America Views: Region Facing A Deep Recession
In 2020, As Fiscal And Political Risks Mount
3. Country-Specific Overviews: Brazil, Colombia, Peru,
Mexico, Argentina and Chile
4. Q&A
Global Economy Falling Into Deep Recession
4
f = Fitch Solutions forecast. Source: Fitch Solutions
• We forecast the global economy to fall into
recession in 2020. Output will contract by
3.6%.
• The contraction in growth will be in large
part driven by developed markets (DMs),
which will see output fall by 5.1% in 2020
given their weak fundamentals and low
growth buffers.
• Emerging markets (EMs) will suffer too, with
output contracting by 1.5% this year driven
by lockdowns, resulting in a decline in
investment, consumption and trade.
• The worst of the economic dislocation will
be felt in Q2, and the economic outlook
should start to improve slowly in Q3 and Q4.
• That said, the recovery will be bumpy and
uneven and the global economy will remain
vulnerable to additional shocks.
Global GDP To Contract By Almost 4% In 2020 Real GDP, %
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
2016 2017 2018 2019 2020f 2021f
World Developed States Emerging Markets
We Have Made Significant Revisions Since March
5
Global Growth Forecasts Have Changed Significantly 2020 Real GDP Growth Forecast, %
Large Changes Across The Regions 2020 Real GDP Growth Forecast, %
Source: Fitch Solutions Source: Fitch Solutions
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
World Developed Markets Emerging Markets
Mar-2020 Jun-2020
-6
-4
-2
0
2
4
6
EM Asia EM Europe MENA S.S. Africa Latin America
Mar-2020 Jun-2020
• New daily cases of Covid-19 continue to climb
in most of the region’s major markets, with
Chile and Peru the exceptions.
• As of June 29, Brazil had the 2nd most cases
globally, behind only the US, while Peru was
6th, Chile was 7th and Mexico was 11th.
• Overall, while Latin America represents a little
over 8% of the world’s population, it has so far
accounted for over 23% of global Covid-19
cases.
• We expect the region will experience a peak
in new daily cases in the coming weeks,
followed by a much slower descent in new
cases and deaths than in East Asia, Europe
and the US.
Coronavirus Pandemic Sweeps Through Latin America
6
New Cases Continue To Climb Latin America (Selected) – New Daily Cases, 7-Day Moving Average
Note: Data through June 29. Source: ECDC, Fitch Solutions
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0
2,000
4,000
6,000
8,000
10,000
12,000
11-M
ar-
20
18-M
ar-
20
25-M
ar-
20
1-A
pr-
20
8-A
pr-
20
15-A
pr-
20
22-A
pr-
20
29-A
pr-
20
6-M
ay-2
0
13-M
ay-2
0
20-M
ay-2
0
27-M
ay-2
0
3-J
un-2
0
10-J
un
-20
17-J
un
-20
24-J
un
-20
Argentina (LHS) Chile (LHS) Colombia (LHS)
Mexico (LHS) Peru (LHS) Brazil (RHS)
• The continuing spread of the disease
suggests that risks to our growth forecasts for
2020 are to the downside.
• In most markets, our forecasts assume that
economic activity begins to recover in H220,
but there is a heightened potential of
disruptions continuing well into Q3.
• Our forecasts are broadly in line with
consensus expectations, though the range of
possible outcomes is wide given elevated
uncertainty.
• Most of the region’s governments have
already exhausted their fiscal and monetary
policy tools, while a weak external
environment will undermine foreign
investment.
Virus Spread Poses Downside Risks To Growth Forecasts
7
Recession Will Be More Severe Than GFC Latin America (Selected) – Real GDP Growth, % y-o-y
Note: 2020 = Fitch Solutions forecast. Source: National Sources, Fitch Solutions
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Peru Colombia Chile Argentina Brazil Mexico
2009 2020
• Latin America's largest economies are
increasingly likely to see a lost decade or
more, with real incomes in 2025 below those
achieved between 2013-15.
• We forecast that in 2020, USD GDP per
capita in Latin America's major markets
(excluding outliers Peru and Venezuela) will
be on average 25.0% lower than their prior
peak.
• By 2025, we expect income levels in
Argentina, Brazil, Colombia and Mexico will
still be below commodity boom highs.
• The region’s lost decade since the end of the
commodity boom is likely to extend well
beyond 2025, as Covid-19 exacerbates prior
headwinds that will constrain growth.
Lost Decade Likely For Many Countries Across The Region
8
Note: 2020-2029 data is Fitch Solutions forecast. Source: National Sources, Fitch Solutions
Much Of The Region Unlikely To Recover Commodity Boom Income Levels Latin America (Selected) - GDP Per Capita, USD
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
Argentina Brazil Colombia Ecuador Mexico Peru
• A confluence of factors will combine to curb
the region's growth over the coming years.
• We expect global growth rates will slow as the
pandemic leads to higher debt loads, de-
globalisation efforts and trade tensions that
will undermine the viability of Latin America’s
export-led growth models.
• In particular, China's efforts to rebalance its
economy and pursue slower, more
consumption-driven growth will weigh on
demand and commodity prices.
• The primary sectors that have drawn capital
into the region face a weaker outlook, while
governments’ ability to drive new investment
will be limited by rising debt burdens.
Slower Trend Growth Across The Region, cont.
9
Note: 2020-2029 data is Fitch Solutions forecast. Source: National Sources, Fitch Solutions
2000-2009 2010-2019 2020-2029f Difference
Latin America (Region) 2.7 2.3 1.8 -0.5
Argentina 1.6 1.4 2.0 0.7
Bolivia 3.7 4.7 2.4 -2.3
Brazil 3.4 1.4 1.8 0.4
Chile 4.2 3.3 1.9 -1.4
Colombia 4.0 3.6 2.6 -1.1
Costa Rica 4.2 3.6 2.5 -1.1
Ecuador 3.9 2.8 1.8 -1.1
El Salvador 1.5 2.5 1.7 -0.8
Guatemala 3.3 3.5 2.3 -1.2
Honduras 4.4 3.6 2.4 -1.3
Mexico 1.5 2.7 1.1 -1.6
Nicaragua 2.9 3.3 1.5 -1.8
Panama 5.8 6.3 4.0 -2.4
Paraguay 2.4 4.4 3.7 -0.7
Peru 5.0 4.5 2.6 -1.9
Uruguay 1.9 3.1 2.6 -0.5
Venezuela 4.0 -8.7 -1.4 7.3
Coming Decade Likely To Underperform The Preceding Two Latin America (Selected) – Real GDP Growth, % y-o-y
• While Covid-19 has overwhelmingly
intensified the challenges facing Latin
America, the region could benefit from
nascent efforts to shift supply chains away
from China.
• US manufacturers' supply chains already
incorporate Mexico, and there are ties to
Central America for low value-add
manufacturing such as textiles.
• US companies looking to near-shore
production could expand in the region,
particularly if rising costs in Vietnam and
other Southeast Asian markets make Central
America more cost-competitive.
• However, this would require political
commitment from the US, while
infrastructure would be a bottleneck.
Supply Chain Disruptions Create Potential Opportunities
10
Source: Trade Map, Fitch Solutions
0
10
20
30
40
50
60
70
80
90
100
Nic
ara
gua
Me
xic
o
Hond
ura
s
El S
alv
ad
or
Costa
Ric
a
Gua
tem
ala
Colo
mb
ia
Ecua
dor
Chile
Bra
zil
Peru
Ven
ezue
la
Arg
en
tin
a
Boliv
ia
Uru
gua
y
Pan
am
a
Para
gu
ay
China US
Regional Trade Relationships Could Shift Latin America - Goods Exports to US & China, % of Total (2019)
Expanded Deficits Will Present Long-Term Policymaking Dilemmas
11
Note: 2020 = Fitch Solutions forecast. Source: National Sources, Fitch Solutions
• A less supportive external environment will
complicate policymakers’ already-difficult task
of enacting structural reforms to boost the
region’s growth potential.
• Significant protests in H219 caused reform
efforts to stall throughout much of the region,
and these will be even more difficult in a post-
Covid-19 world.
• Every market will head into the coming years
with wider deficits and larger debt loads,
likely limiting fiscal space to support
consumption and boost investment.
• However, policymakers will struggle to
distribute the costs of fiscal consolidation, as
both spending cuts and higher taxes will be
difficult to justify to the public.
Fiscal Deficits Will Widen Significantly In 2020 From Previous Year Latin America - Forecast Change In Budget Balance 2019/20, % of GDP
-8
-7
-6
-5
-4
-3
-2
-1
0
Nic
ara
gua
Uru
gua
y
Boliv
ia
Gua
tem
ala
Pan
am
a
Costa
Ric
a
Hond
ura
s
Me
xic
o
Para
gu
ay
Arg
en
tin
a
Colo
mb
ia
Ecua
dor
Peru
El S
alv
ad
or
Bra
zil
Chile
Higher Debt Loads & Funding Costs May Prompt A Fiscal Adjustment…
12
Elevated Debt Loads In Much Of Region Limits Space Latin America – Forecast Total Government Debt (End-2020), % of GDP
CDS Spreads Reflect Fiscal Pressure Latin America (Selected) – 5-Year USD Credit Default Swaps, Basis Points
Source: National Sources, Fitch Solutions Source: Bloomberg, Fitch Solutions
0
10
20
30
40
50
60
70
80
90
100
110
Boliv
ia
Arg
en
tin
a
Bra
zil
El S
alv
ad
or
Hond
ura
s
Uru
gua
y
Costa
Ric
a
Nic
ara
gua
Co
lom
bia
Ecua
dor
Me
xic
o
Pan
am
a
Chile
Peru
Gua
tem
ala
Para
gu
ay
0
100
200
300
400
500
600
29-Jun-15 29-Jun-16 29-Jun-17 29-Jun-18 29-Jun-19
Brazil Chile Colombia Mexico Peru
• The combination of weak growth and strained
government resources will exacerbate already
significant threats to political stability in Latin
America.
• A decline in living standards, high economic
inequality and wavering faith in democratic
institutions have driven significant protests
across the region over recent years.
• Covid-19 has brought a temporary reprieve,
as lockdown orders have brought street
protests and unrest to a halt and most leaders
have seen a rise in approval ratings.
• However, as the health crisis passes,
governments across the region will face
heightened pressure to support household
incomes.
…Or Political Pressure May Keep Public Spending Elevated
13
Source: Fitch Solutions
Political Risk Profile Weakens Across The Region Latin America - Change In Short-Term Political Risk Index Score, Dec-2019 To Jun-2020, Out Of 100
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Ven
ezue
la
Peru
Chile
Para
gu
ay
Boliv
ia
Ecua
dor
Costa
Ric
a
Arg
en
tin
a
Colo
mb
ia
Pan
am
a
Uru
gua
y
Gua
tem
ala
Nic
ara
gua
Hond
ura
s
Bra
zil
Me
xic
o
El S
alv
ad
or
Brazil: Deep Recession And Instability In Regional Epicentre
14
Note: Levels represent average of most recent polls. Source: Various, Fitch Solutions
• Brazil is now a global epicentre of Covid-19,
and is experiencing an economic, political
and public health crisis. We forecast real
GDP to contract 6.5% in 2020.
• President Jair Bolsonaro’s uneven response
has failed to contain the spread of Covid-19,
and his administration is now facing rising
public and intragovernmental opposition.
• As Bolsonaro focuses on maintaining his
hold on power, reform and liberalisation
efforts will likely be left behind.
• Meanwhile, we forecast the fiscal deficit will
reach its widest point in history, 15.0% of
GDP, over the coming quarters as revenues
fall and expenditures head higher.
President Bolsonaro Vulnerable Amid Rising Rejection Brazil – Presidential Approval Rating, %
0
10
20
30
40
50
60
28-J
an
-19
18-F
eb
-19
11-M
ar-
19
1-A
pr-
19
22-A
pr-
19
13-M
ay-1
9
3-J
un-1
9
24-J
un
-19
15-J
ul-
19
5-A
ug
-19
26-A
ug
-19
16-S
ep
-19
7-O
ct-
19
28-O
ct-
19
18-N
ov-1
9
9-D
ec-1
9
30-D
ec-1
9
20-J
an
-20
10-F
eb
-20
2-M
ar-
20
23-M
ar-
20
13-A
pr-
20
4-M
ay-2
0
25-M
ay-2
0
15-J
un
-20
Approve Disapprove
Colombia: First Recession This Century, With Quarantine Still In Place
15
Note: 2020-2024 data are Fitch Solutions forecast. Source: National Sources, Fitch Solutions
• We expect real GDP in Colombia will
contract 4.5% y-o-y in 2020, from a 3.3%
expansion in 2019.
• Private consumption will be particularly hard-
hit as the Covid-19 economic shock causes
a surge in unemployment.
• Meanwhile, restrictions on industrial
production and lower oil prices will
compound the recent decline in goods
exports.
• While fiscal and monetary stimulus will help
to contain the downside pressures to growth,
wider fiscal deficits and an increase in public
debt will present a policymaking dilemma in
the medium-to-long term.
Covid-19 Will Undermine Economic Activity, Consumption Colombia – Real GDP & Private Consumption
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
202
2
202
3
202
4
Real GDP, % y-o-y Private Consumption, % y-o-y
Peru: Short-Term Economic Strain Will Quickly Turn To Recovery
16
Source: National Sources, Fitch Solutions
• Although Peru instituted one of the region’s
most stringent national lockdowns, the
country has been particularly impacted by
Covid-19. As of June 29, it ranks in the top
ten in the world in confirmed cases and
deaths.
• We forecast real GDP will contract 4.3% in
2020, with risks to the downside, as
economic activity hits bottom in Q220.
• However, the country’s ample fiscal flexibility
and higher copper prices will support its
economic rebound beginning in H220.
• The finance ministry and central bank have
committed PEN90.0bn (12.0% of GDP) in
stimulus money, and the Vizcarra government
has pledged funding for the recovery phase.
More Fiscal Space Will Aid Peru’s Economic Rebound Latin America (Selected) – 2019 Public Expenditures & Government Debt, % Of GDP
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
Argentina Brazil Colombia Mexico Chile Peru
Total Expenditures Total Government Debt
• We have revised down our 2020 forecast
for Mexico to -7.1%, from -5.7% previously,
with risks strongly to the downside.
• Although new daily cases continue to grow,
President Andrés Manuel López Obrador
(AMLO) began reopening the country’s
economy on June 1.
• The government’s fiscal response has been
minimal. While Banxico has stepped up,
implementing 225bps of rate cuts in 2020,
this is unlikely to compensate for the lack of
stimulus spending.
• Risks to sentiment remain significant, from
rising cases, erratic policymaking under
AMLO and risks to public finances from
national oil company Pemex.
Mexico: Economy Reopening, Despite Concerning Data
17
Source: Bloomberg, Fitch Solutions
-10
-8
-6
-4
-2
0
2
4
6
Ja
n-1
2
Ma
y-1
2
Sep
-12
Ja
n-1
3
Ma
y-1
3
Sep
-13
Ja
n-1
4
Ma
y-1
4
Sep
-14
Ja
n-1
5
Ma
y-1
5
Sep
-15
Ja
n-1
6
Ma
y-1
6
Sep
-16
Ja
n-1
7
Ma
y-1
7
Sep
-17
Ja
n-1
8
Ma
y-1
8
Sep
-18
Ja
n-1
9
Ma
y-1
9
Sep
-19
Ja
n-2
0
Real GDP, % y-o-y Economic Activity, % y-o-y, 3mma
Monthly Data Points Towards Massive Contraction in Q220 Mexico – Quarterly Real GDP Growth And Economic Activity Index
Argentina: President To Face Pressure As Economy Falls Further
18
Source: INDEC, Fitch Solutions
• Argentina’s recession will be among the
region’s most severe, due to the extension of
lockdown measures in Buenos Aires and
continuing uncertainty over debt
restructuring.
• In addition, President Alberto Fernández's
moves to nationalise a domestic agricultural
exporter shows that his government is
pursuing increasingly interventionist
economic policies.
• We also expect inflation will rise in the
coming months amid continuing exchange
rate pressures and rising expectations,
weighing on household incomes.
• Pressure from unions and civil society
groups is likely to rise as attention turns
toward economic conditions.
Nationwide Lockdown Measures Bring Economy To Standstill Argentina – Monthly Economic Activity By Sector, % y-o-y
-30
-25
-20
-15
-10
-5
0
5
10
15
-100
-75
-50
-25
0
25
50
Ja
n-1
5
Apr-
15
Ju
l-1
5
Oct-
15
Ja
n-1
6
Apr-
16
Ju
l-1
6
Oct-
16
Ja
n-1
7
Apr-
17
Ju
l-1
7
Oct-
17
Ja
n-1
8
Apr-
18
Ju
l-1
8
Oct-
18
Ja
n-1
9
Apr-
19
Ju
l-1
9
Oct-
19
Ja
n-2
0
Apr-
20
Monthly Activity (RHS) Agriculture (LHS) Construction (LHS)
Chile: Falling Into Steep Recession Amid Covid-19 Outbreak
19
Source: Bloomberg, Fitch Solutions
-20
-15
-10
-5
0
5
10
15
Ja
n-9
7
Oct-
97
Ju
l-9
8
Apr-
99
Ja
n-0
0
Oct-
00
Ju
l-0
1
Apr-
02
Ja
n-0
3
Oct-
03
Ju
l-0
4
Apr-
05
Ja
n-0
6
Oct-
06
Ju
l-0
7
Apr-
08
Ja
n-0
9
Oct-
09
Ju
l-1
0
Apr-
11
Ja
n-1
2
Oct-
12
Ju
l-1
3
Apr-
14
Ja
n-1
5
Oct-
15
Ju
l-1
6
Apr-
17
Ja
n-1
8
Oct-
18
Ju
l-1
9
Apr-
20
• We forecast that real GDP in Chile will
contract by 5.1% y-o-y in 2020 as the
country’s domestic Covid-19 outbreak further
dampens economic activity.
• In April, the Chilean economy contracted
14.1% y-o-y. This data, and Chile’s rising
death toll from the coronavirus, suggest the
economic impact will carry through Q220.
• Recent political news has been positive, as
street protests have disappeared and
Piñera’s approval ratings have risen.
• However, the government's uneven
response to the pandemic, high
unemployment and upcoming elections
increase the risk of renewed unrest.
Historic Contraction, With Further Declines Likely In May Chile – Monthly Economic Activity Index, % y-o-y
Q&A
21
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