Latin America has embarked on a painfully long period of greater austerity, and lower commodity prices and economic growth will barely pick up speed this year, a Reuters poll found Thursday. With nose-diving oil and metal prices weighing on government finances and jeopardising investments, economists in the quarterly poll chopped 2015 growth forecasts again for the region's seven largest countries, from Mexico to Argentina.
Brazil is now expected to grow a meager 0.5 percent in 2015, down from an estimate of 1.1 percent in the prior survey and barely up from an expected 0.2 percent growth in 2014.
Mexico will probably expand by 3.4 percent, compared to 3.7 percent in the last poll, while oil producer Venezuela, flirting with a debt default, will probably contract 2.0 percent, according to the poll of about 50 economists.
Growth would probably improve somewhat in 2016, but would still fall short of the region's potential: Brazil, the region's largest economy, is expected to grow just 1.8 percent.
"It is a 'nano' recovery," said Marcos Buscaglia, head of Latin America economic research at Bank of America-Merrill Lynch. "We will see very modest growth everywhere."
The free-fall in commodity prices since mid-2014 has dealt a direct blow to Latin America. Iron ore and copper are top exports for Brazil and Chile, while oil, which touched the lowest in almost six years on Wednesday, accounts for more than 50 percent of Colombia's exports.
The situation is particularly delicate in Venezuela. According to Barclays, the OPEC-member loses about $700 million in revenue for every dollar that oil prices drop.
Shortages of basic products, from milk to toilet paper, have worsened while inflation soared. Prices may rise as much as 115 percent in 2015, according to the highest forecast in the poll.
"Years of inconsistent macroeconomic policies are taking Venezuela closer to breaking point," UBS economists led by Rafael de la Fuente wrote in a research note. They expect the country to devalue its currency and possibly sell assets to stay afloat ahead of the 2015 parliamentary elections.
The risk of contagion of a Venezuela crisis to other Latin American economies is deemed low, and elsewhere in the region, there is no talk of collapse.
However, the grim outlook for economic growth - extremely weak compared to other emerging markets - has raised concerns over long-term debt sustainability in countries such as Brazil.
The result has been a shift towards orthodoxy: In Brazil, re-elected President Dilma Rousseff picked Chicago-trained banker Joaquim Levy as finance minister and has hinted at tax hikes and budget cuts. In Argentina, all potential candidates in the October presidential election are seen as more market-friendly than President Cristina Fernandez.
"There is very little option for Brazil," BofA's Buscaglia said. "That doesn't mean it is going to be easy, or that it is going to be linear. It will be very difficult to implement a fiscal adjustment in a country that is not growing."
Mexico's finances are in better shape, which should help it take advantage of faster US growth to accelerate closer to its potential, economists said. The main risks lie on the energy sector, where falling oil prices may threaten investments.
Weaker exchange rates may also support growth in other Latin American countries by boosting exports, Buscaglia noted. A Reuters poll earlier this month showed currencies in the region including the Brazilian real and the Chilean peso are set to drop this year as the US Federal Reserve prepares to raise interest rates.
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