The Latin American region is set to return to economic growth this year, bolstered by central bank interest rate cuts in several nations before a wave of elections clouds the prospects for sustained expansion, a Reuters poll showed on Thursday.
In 2017, Brazil and Argentina are widely expected to climb out of recession. Mexico is forecast to keep growing despite US President Donald Trump's trade and immigration policies, seen as unfavourable to the United States' southern neighbour. The expansion in these leading Latin American economies will help the area emerge from the 0.7 percent contraction the IMF estimated for the region last year. Overall, analysts downgraded most of their gross domestic product growth estimates for the area's seven largest economies in a January poll.
Brazil, where the most aggressive rate cuts are taking place, is forecast to grow 0.6 percent in 2017 and 2.4 percent in 2018, according to the median estimates in the poll. Chile and Colombia, where most economists also expect rate cuts, are set to grow 1.9 percent and 2.3 percent, respectively, this year. Some economists also see chances of rate cuts in Peru, where floods reduced the prospects for this year's growth, which the poll estimated at 3.5 percent.
In Mexico and Argentina, where central banks have been raising interest rates, the GDP is set to expand 1.7 percent and 2.8 percent, respectively, this year, according to the poll. Inflation has slowed in the region, in part due to strong crop harvests in Brazil and Argentina and falling food prices, and market volatility has been low. A feared surge in US interest rates has not yet materialised as the Federal Reserve has taken a gradual approach to monetary tightening.
"The global scenario is still relatively benign for emerging markets and capital flows," said Alberto Ramos, head of Latin America economic research at Goldman Sachs. "But their capacity to quickly accelerate their economies is limited; they can't use the fiscal policy," he said. "The only thing that could help is monetary policy but in many places it will be more to stop tightening."
The real test for Latin America's incipient recovery should come with the busy election agenda of 2017 and 2018. Investors fear populist candidates in Mexico and Brazil could derail efforts to implement market-friendly reforms. They will also keep an eye on mid-term legislative elections in Argentina and presidential votes in Colombia and Chile.
Bank of America Merrill Lynch economist Carlos Capistran sees a risk of Mexico losing its investment grade credit rating status if leftist presidential candidate Andr?s Manuel L?pez Obrador wins next year's vote. Local elections this June will be closely monitored as a bellwether for the national vote.
"The presidency is up for grabs given the historically low approval rate of the president and his party," he wrote, referring to the ruling centrist Institutional Revolutionary Party (PRI). Lopez Obrador may be a beneficiary of nationalist sentiment stoked by Trump's vow to modify the North American Free Trade Agreement, build a wall on the US-Mexico border and crack down on illegal immigration. Venezuela's shortages-hit economy is seen shrinking for the fourth straight year as leftist President Nicolas Maduro grapples with low popularity and anti-government protests ahead of presidential elections due next year.
The country's crippling economic crisis is expected to extend into next year, with forecasts of a contraction of 3.5 percent in 2017 and 0.3 percent in 2018, the poll showed. Venezuelans in poor areas blocked streets and lit fires during scattered protests across the oil-exporting country on Tuesday, and two people were killed during the growing unrest.
"As oil prices remain relatively low for longer, some officials are now starting to lose faith in the oil market and are, for the first time, considering the option of debt restructuring," wrote Carlos de Sousa, Latin America economist with Oxford Economics, in a research note. "But Maduro's governing style is to postpone decisions until it is impossible to postpone them any longer," Sousa added.
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