The risk rating agency Fitch Ratings foresees a 2024 marked by a growth slowdown in the economies of Latin America, a region still affected by lower demand and high interest rates but which has comparative advantages in a complex geopolitical scenario.
The agency estimates a slowdown in economic growth of Latin America this year, to 1.5%, from the expansion of 2.3% in 2023.
“How much we think about region growth performance, has clearly been affected by the expected slowdown in some of the largest economies. “I’m talking about Mexico and Brazil,” said Shelly Shetty, managing director of sovereigns for Fitch Ratings in an event streamed online.
Fitch: what is estimated for Argentina
He also referred to a recession in Argentina while they wait for the country to go through a macroeconomic adjustment process after the assumption of Javier Milei as president. The libertarian economist came to power at the end of last year with promises such as eliminating the central bank (BCRA), cleaning up the fiscal deficit and attacking rampant inflation.
Among the external challenges facing Latin America, Fitch considers the slowdown in growth in China and the United States, a tight global financial scenario and the climate impact of the El Niño phenomenon.
Tailwind for the region?
However, there are factors that could benefit the region from a medium-term perspective.
“I would say there are some positive elements for the region, clearly it was not at the epicenterand no focus of geopolitical tension world during 2022-2023, has raw materials that are very useful in a green transition (…) and finally nearshoring,” Shetty said.
The executive pointed out that “nearshoring”, a strategy of outsourcing to third parties to nearby countries and with similar time zones, is beneficial for the region, especially for Mexico.
However, neither nearshoring, nor the advantages in terms of energy or geopolitical risk would have a immediate impact in the growth of Latin America, according to the agency”.
“We continue to believe that political stagnation in the region, increased state interventionism and lack of reforms are holding back growth in a number of countries in the region,” Shetty said.
Fitch’s outlook for Brazil
As an exception, he mentioned Brazil, a country where a series of reforms have been seen in recent years and the approval of a reform tax in December 2023.
The rating agency improved the debt rating for Brazil in July 2023, when it raised it to “BB” from “BB-“, and then maintained it after the approval of the tax reform at the end of last year.
The country lost all its investment grades at the beginning of 2016, after a series of international and domestic crises, and with the end of the commodity market boom.
And while Fitch was complimentary of its recent performance, it rules out a return to investment grade in the short term.
“Any improvement in Brazil’s (rating) will be more difficult than the last one (…) An improvement of one grade to BB+ could be achievable if the government meets its own projections, its goals and also achieves real GDP growth from the current pace of 2.0% to something close to 2.5%,” said Todd Martinez, senior director of sovereigns at Fitch.
Source: Ambito
