Latin American economic outlook mixed, says bank research

by Ray Clancy on September 22, 2011

Economies producing mixed figures

Latin American economies are producing mixed figures at the start of the second half of the year as the eurozone crisis and recession fears continue to worry investors, according to the latest research from BBVA.

Industrial output in Mexico grew by 3.2% in July, suggesting that GDP growth in the quarter will pick up. In Peru economic activity was up 6.5% in July, above that observed in June and in Brazil, retail sales were up 1.4% month on month in July, the highest figure so far this year.

However, in other countries there were some signs of a slowdown. In Colombia, imports in July rose 32.8% year on year, slightly down on the previous months while in Uruguay there was a major slowdown in growth in the second quarter to 4.8%, far below forecasts. In Venezuela, oil production was down 0.7% in August, due partly to the recurrent electrical outages.

‘In line with our expectations and those of the market, the Central Bank of Chile maintained its policy rate at 5.25%, with a neutral bias, while the Central Bank of Argentina maintained its selling position in forex markets, although at a lower level than the previous week. As a result, the exchange rate stabilized at around ARS 4.2/US$,’ said the BBVA report.

It also points out that a decision over the date for the 2012 elections in Venezuela has ended a lot of uncertainty in the region. The presidential election is set for 07 October, separate from the municipal elections. The transfer of presidential office will take place on 10 January, 2013. This means there will be a transition period of three months, rather than the current one month.

It also says that there have been a number of significant events outside the region that affect the region, most notably support offered by French president Nicolas Sarkozy and German chancellor Angela Merkel to Greece; the extension of the austerity programme in Italy; the possibility of bond purchases by China; and the announcement of coordinated liquidity measures in USD by the central banks of the US, euro zone, Britain, Japan and Switzerland.

Latin American stock markets have recovered in response to expectations of support for sovereign debt in the euro zone and monetary actions in the US, it adds.

‘However, their performance was notably below that of developed countries, particularly in Europe. The stock market indices with the biggest rise in the region were Mexico, Peru, Colombia and Brazil, due to their correlation with the US indices. In contrast, Chile has over the last month moved more in line with the Chinese stock market,’ it concludes.

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