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BNP PARIBAS LATAM MACROECONOMIC OUTLOOK SUMMARY

Core Content

BNP Paribas provides a comprehensive macroeconomic outlook for Latin America, focusing on key countries such as Brazil, Mexico, Colombia, Argentina, and Chile. The report highlights the global economic context, regional economic performance, monetary policy trends, inflation dynamics, and the impact of political events on economic outlooks.

Main Points

Global Context

• The global economy is showing signs of expansion, with the Composite Leading Indicator at its long-term average.
• The global monetary policy is gradually removing accommodation, with the US Federal Reserve and other central banks expected to raise interest rates.
• The US dollar is anticipated to peak, which could lead to a weaker USD and potentially boost international commodity prices.

Latin America Overview

• The region is expected to experience moderate growth in 2018, with a forecast of 2.5% for the entire Latin America.
• Inflation is expected to decline across the region, with Latin America's CPI inflation forecast at 5.4% for 2018 and 4.7% for 2019.
• The current account deficit is expected to remain manageable, supported by FDI inflows.
• The region is facing a variety of challenges, including high taxes, poor infrastructure, and complex labor laws.

Country-Specific Analysis

Brazil

• Election Dynamics: Brazil faces a significant election in 2018, with a general election in October. The first round on 7 October and the second round on 28 October.
• Economic Recovery: Growth recovery is gaining traction in 2018, with the unemployment rate peaking and showing signs of improvement.
• Inflation: Inflation has fallen below target, with underlying services price inflation plummeting and inflation expectations returning to target levels.
• Monetary Policy: The Central Bank of Brazil (BCB) is expected to cut interest rates, with the market consensus aligning with BNP Paribas' view.
• Public Debt: Public sector credit is shrinking after years of growth, and non-performing loans are improving with economic recovery.
• Sovereign Ratings: The country's sovereign ratings are under pressure due to high fiscal deficits and generous retirement benefits, but there is little risk of a downgrade to junk status.
• Retirement Benefits: Brazil's retirement system is very generous, with a high proportion of older dependents relative to the working age population, leading to high pension expenditures.

Mexico

• Economic Resilience: Mexico has shown resilient growth, with the likely moderation in 2018.
• Monetary Policy: The Bank of Mexico (Banxico) is expected to continue cutting rates, with inflation expected to peak and decline.
• Fiscal Policy: Fiscal balances are improving, and the government is expected to comply with fiscal rules through reforms and budget cuts.
• Sovereign Ratings: Mexico's sovereign ratings have been upgraded over time, and there is potential for further improvement.
• Political Landscape: The 2018 elections are expected to be competitive, with a wide range of potential candidates spanning the political spectrum.

Colombia

• Economic Challenges: The country is facing a slowdown in capital inflows, particularly in the oil and mining sectors.
• Election Calendar: Colombia has a legislative and presidential election in 2018, with key dates on 11 March, 27 May, and 17 June.
• Monetary Policy: The Bank of Colombia (BanRep) is expected to continue cutting rates, with inflation slowing and growth concerns.
• Sovereign Ratings: The country's sovereign ratings are under pressure, but the risk of downgrade to junk status is low.
• Fiscal Policy: Compliance with the fiscal rule in 2018 and beyond will require reforms and budget cuts.

Argentina

• Economic Recovery: Argentina is expected to grow for the first time in two consecutive years since 2011.
• Inflation: Inflation is expected to moderate, with the Central Bank of Argentina (BCRA) likely to miss its target again in 2018.
• Fiscal Deficit: The nominal fiscal deficit is expected to improve in 2018.
• Political Impact: The country's economic performance is closely tied to political stability and policy reforms.

Chile

• Economic Growth: Chile is expected to experience growth acceleration, with the economy already turning a corner.
• Monetary Policy: The Central Bank of Chile (BCCh) is expected to keep rates on hold in the near term before starting a normalization cycle.
• Inflation: CPI inflation is expected to moderate, with a forecast of 3.1% for 2018.
• Current Account: The current account is expected to remain in deficit, but the fiscal balance is improving.
• Confidence: Consumer and business confidence have returned to optimistic levels, indicating a positive outlook.

Key Information

Economic Forecasts

• Real GDP Growth:

  • Latin America: -0.7% (2016), 1.6% (2017), 2.5% (2018), 3.4% (2019)
  • Argentina: -2.3% (2016), 2.7% (2017), 3.0% (2018), 3.5% (2019)
  • Brazil: -3.5% (2016), 1.1% (2017), 3.0% (2018), 3.5% (2019)
  • Chile: 1.6% (2016), 1.7% (2017), 3.5% (2018), 4.0% (2019)
  • Colombia: 2.0% (2016), 1.5% (2017), 2.5% (2018), 3.5% (2019)
  • Mexico: 2.3% (2016), 2.0% (2017), 1.5% (2018), 3.0% (2019)

• Inflation:

  • Latin America: 9.1% (2016), 6.5% (2017), 5.4% (2018), 4.7% (2019)
  • Argentina: 39.0% (2016), 24.8% (2017), 20.0% (2018), 12.5% (2019)
  • Brazil: 7.0% (2016), 2.8% (2017), 3.5% (2018), 4.0% (2019)
  • Chile: 2.7% (2016), 2.3% (2017), 3.1% (2018), 3.0% (2019)
  • Colombia: 5.7% (2016), 4.0% (2017), 3.0% (2018), 3.7% (2019)
  • Mexico: 2.8% (2016), 6.0% (2017), 3.5% (2018), 3.3% (2019)

• Exchange Rates:

  • Argentina: 15.88 (2016), 18.62 (2017), 22.50 (2018), 23.00 (2019)
  • Brazil: 3.25 (2016), 3.31 (2017), 3.00 (2018), 2.90 (2019)
  • Chile: 671 (2016), 615 (2017), 600 (2018), 580 (2019)
  • Colombia: 3001 (2016), 2987 (2017), 2850 (2018), 2950 (2019)
  • Mexico: 20.73 (2016), 19.66 (2017), 18.00 (2018), 17.50 (2019)

• Current Account Deficit:

  • Latin America: -2.1% (2016), -1.5% (2017), -1.8% (2018), -2.3% (2019)
  • Argentina: -2.8% (2016), -5.2% (2017), -5.4% (2018), -6.0% (2019)
  • Brazil: -1.3% (2016), -0.5% (2017), -1.5% (2018), -2.2% (2019)
  • Chile: -1.4% (2016), -1.5% (2017), -1.2% (2018), -2.5% (2019)
  • Colombia: -4.3% (2016), -3.5% (2017), -3.1% (2018), -3.2% (2019)
  • Mexico: -2.5% (2016), -1.0% (2017), -0.6% (2018), -0.6% (2019)

• Fiscal Balance:

  • Latin America: -6.1% (2016), -5.2% (2017), -4.9% (2018), -4.8% (2019)
  • Argentina: -5.9% (2016), -6.1% (2017), -5.7% (2018), -5.1% (2019)
  • Brazil: -9.0% (2016), -7.8% (2017), -7.5% (2018), -7.8% (2019)
  • Chile: -2.1% (2016), -2.8% (2017), -2.5% (2018), -2.1% (2019)
  • Colombia: -3.8% (2016), -3.6% (2017), -3.1% (2018), -3.1% (2019)
  • Mexico: -3.6% (2016), -2.2% (2017), -2.0% (2018), -1.5% (2019)

• Interest Rates:

  • Argentina: 24.8% (2016), 28.8% (2017), 22.8% (2018), 16.8% (2019)
  • Brazil: 13.8% (2016), 7.0% (2017), 6.8% (2018), 8.0% (2019)
  • Chile: 3.5% (2016), 2.5% (2017), 3.5% (2018), 4.0% (2019)
  • Colombia: 7.5% (2016), 4.8% (2017), 4.0% (2018), 4.5% (2019)
  • Mexico: 5.8% (2016), 7.3% (2017), 6.5% (2018), 5.5% (2019)

Conclusion

The BNP Paribas report outlines a cautiously optimistic outlook for Latin America in 2018, with growth expected to pick up, inflation to moderate, and fiscal balances to improve. The report emphasizes the importance of political stability and policy reforms, particularly in Brazil and Argentina, where elections and fiscal policies are expected to play a significant role in shaping economic outcomes. The region is also facing challenges such as high taxes, poor infrastructure, and complex labor laws, which could hinder economic performance. The report suggests that a weaker USD could have positive effects on international commodity prices, which in turn could benefit countries like Brazil and Mexico. Overall, the outlook is positive, but the region's economic performance will depend on the successful implementation of reforms and the continuation of favorable global conditions.