latam economic outlook 2q13: latin america remains strong

23
Latin America remains strong Juan Ruiz BBVA ResearchChief Economist for South America Latam Economic Outlook–Second Quarter 2013Madrid, 14th May 2013

Upload: bbva-research

Post on 08-May-2015

427 views

Category:

Technology


1 download

DESCRIPTION

The world economy continues to grow, but there is an increasing uneveness between the different areas, especially within developed countries The international backdrop continues to present major challenges for the region, including moments of extreme market volatility, a downward trend in commodity prices and increased capital inflows Domestic demand will underpin sustainable growth in the region. Latin American GDP will grow at 3.5% in 2013 and 3.7% in 2014, if Brazil finally recovers Central banks will maintain a wait-and-see stance in 2013, and begin to raise interest rates early in 2014. The exceptions are Mexico, with a reduction of the rates in the third quarter, and Brazil, where upward adjustment will continue The region should promote reforms to increase productivity and consolidate long-term growth. If the region wants to consolidate its high rates of growth, it has to recognize that sustainable per capita income growth cannot be based solely on capital accumulation and increasing employment: productivity also has to improve

TRANSCRIPT

Page 1: LatAm Economic Outlook 2Q13: Latin America remains strong

Latin America remains strong

Juan Ruiz

BBVA Research│Chief Economist for South America

Latam Economic Outlook–Second Quarter 2013│ Madrid, 14th May 2013

Page 2: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 2

The world economy continues to grow, but there is an increasing uneveness between the different areas, especially within developed countries

The international backdrop continues to present major challenges for the region, including moments of extreme market volatility, a downward trend in commodity prices and increased capital inflows

Domestic demand will underpin sustainable growth in the region. Latin American GDP will grow at 3.5% in 2013 and 3.7% in 2014, if Brazil finally recovers

Central banks will maintain a wait-and-see stance in 2013, and begin to raise interest rates early in 2014. The exceptions are Mexico, with a reduction of the rates in the third quarter, and Brazil, where upward adjustment will continue

The region should promote reforms to increase productivity and consolidate long-term growth. If the region wants to consolidate its high rates of growth, it has to recognize that sustainable per capita income growth cannot be based solely on capital accumulation and increasing employment: productivity also has to improve

Main messages

1

2

3

4

5

Page 3: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 3

1. A more uneven global scenario

2. Latin America remains strong

3. Latin America must not lose sight of the long-term picture

Contents

Page 4: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 4

BBVA Financial Stress Indicator Source: BBVA Research

Eurozone: political gridlock in Italy; Bail-out in Cyprus; Portugal’s Constitutional Court ruling on some austerity measures

USA: political deadlock over long-term fiscal policy

China: deeper-than-expected slowdown and increasing risks of local debt and shadow banking

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Apr-

08

Oct

-08

Apr-

09

Oct

-09

Apr-

10

Oct

-10

Apr-

11

Oct

-11

Apr-

12

Oct

-12

Apr-

13

US Eurozone

Markets remained immune to risk events

Page 5: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 5

US: labour market Source: BBVA Research and Haver

Private spending continues resilient despite fiscal cliff and sequester

Growth in private consumption is underpinned by employment rise, though the unemployment rate decreases slowly

Quantitative easing will continue shoring up growth until prospects for labour market improves 5

6

7

8

9

0

50

100

150

200

250

300

350

400

Jan-1

2

Feb

-12

Mar-

12

Apr-

12

May-1

2

Jun-1

2

Jul-1

2

Aug

-12

Sep

-12

Oct

-12

No

v-1

2

Dec-

12

Jan-1

3

Feb

-13

Mar-

13

Apr-

13

Total private employment (change in thousands, SA), LHS

Unemployment rate (LRS)

Yet growth losses momentum in some regions. In the US the slowdown is shallow ...

Page 6: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 6

China: contribution to GDP growth (NSA, percentage points) Source: BBVA Research and Haver

In Q1 GDP growth disappointed, despite stronger external demand

The change in the Chinese model towards consumption continues

Authorities are committed to sustained growth. Room for manoeuvre underpinned by lack of inflationary pressures

Moderate slowdown in China

-2

0

2

4

6

8

10

Mar-

11

Jun-1

1

Sep

-11

Dec-

11

Mar-

12

Jun-1

2

Sep

-12

Dec-

12

Mar-

13

Net exports Investment Consumption

Page 7: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 7

Germany’s exports slows, despite resilience of emerging markets

In France, uncertainty over taxation policy, fiscal consolidation plans and lack of reforms dampens confidence

Easing financial tensions will support growth, especially if accompanied by measures to bolster credit access and diminish financial fragmentation

38

42

46

50

54

58

62

66

38

42

46

50

54

58

62

66

Mar-

11

Jun-1

1

Sep

-11

Dec-

11

Mar-

12

Jun-1

2

Sep

-12

Dec-

12

Mar-

13

Italy France Germany

Manufacturing confidence (PMI) Source: BBVA Research and Haver

Growth disappoints in Europe. The slowdown hits Europe’s core economies

Page 8: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 8

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Fed QE1 Fed QE2 Fed QE3 BoJ QQE

0%

5%

10%

15%

20%

25%

30%

Agency debt MBS Gov.bonds Other Share of economy (%, rhs))

Monetary expansion in US and Japan USD bln and % GDP Source: BBVA Research, Haver

In the next two years, the BoJ will inject as much liquidity as the Fed has been injecting since 2008

Monetary expansion aims at stamping out deflation and bolster Japan’s growth

However, it will not be enough. Bolstering growth also requires reforms and changes in fiscal policy

A new factor arises: massive monetary expansion in Japan

Page 9: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 9

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

6000

Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13

Brazil Latam ex Brazil

QE QE2 QE3QE2 AnnouncedDraghi hints at saving the euroECB LTRO QE BoJ

… that will continue feeding Latam with capital inflows Capital inflows to Latin America, fixed income and equity (million of dollars, moving average of 4 weeks) Source: BBVA Research and EPFR

Page 10: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 10

Global growth boosted by emerging markets

Advanced economies will grow slowly, especially the eurozone, where recovery is not likely until 2014

Latin America accelerates its growth towards its potential; China will continue growing fast, but the balance of risks is tilted to the downside

Global GDP growth (%) Source: BBVA Research y Haver

3,33,9

1,82,3

-0,1

1

5,66

-2

0

2

4

6

8

-2

0

2

4

6

8

2013 2014 2013 2014 2013 2014 2013 2014

World USA Eurozone Eagles*

May-13 Feb-13

The sound global growth belies regional differences

Page 11: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 11

1. A more uneven global scenario

2. Latin America remains strong

3. Latin America must not lose sight of the long-term picture

Contents

Page 12: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 12

Growth will be underpined by domestic demand: the region will grow at 3,5% in 2013 and 3,7% in 2014

GDP growth of 2,9% in 2012 was dragged down by Brazil (0,9%)

Recovery in Brazil is necessary, although growth forecasts are biased downwards

Latam*: GDP growth (%) Sourcee: BBVA Research

* Weighted average of Argentina, Brasil, Chile, Colombia, Mexico, Panama, Paraguay, Peru, Mexico, Uruguay and Venezuela

Confidence indicators keep a positive perspective in most of the countries, what will support the domestic demand

-2.2

6.2

4.4

2.9

3.5 3.7

-3

-2

-1

0

1

2

3

4

5

6

7

2009 2010 2011 2012 2013 2014

- 2.2

6.2

4.4

2.9

3.5 3.7

-3

-2

-1

0

1

2

3

4

5

6

7

2009 2010 2011 2012 2013 2014

Page 13: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 13

Andean countries will grow particularly strong; Panama and Paraguay

Slowdown in Colombia was compensated with fiscal and monetary stimuli

Fiscal stimuli in Peru compensate the weakness of the external sector

Strong upwards review of the GDP growth forecasts in Panama, due to the strong and continued public investment

GDP growth estimations, 2013-2014 (%) Source: BBVA Research

0

2

4

6

8

10

12

20

13

20

14

20

13

20

14

20

13

20

14

20

13

20

14

20

13

20

14

20

13

20

14

20

13

20

14

20

13

20

14

20

13

20

14

20

13

20

14

ARG BRA CHI COL MEX PAN PAR PER URU LATAM

May 2013 forecasts Feb 2013 forecasts

Page 14: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 14

In general, inflation will be back to the target ranges

Inflation is out of the target ranges in most of the countries, except in CHI, PAR (under the target) and BRA, URU and MEX (over the target, although anchored to the target in MEX)

Inflation will be within the target ranges in 2013 and 2014, except in URU

Countries with inflation targets: difference between inflation and central bank target (pb) Source: BBVA Research and Haver

In Brazil inflationary pressures will continue to accumulate in 2013. It will be controled because of the tax cut and the interest rates raise

-5

-4

-3

-2

-1

0

1

2

3

4

5

Jan-1

2

Mar-

12

May-1

2

Jul-1

2

Sep-1

2

Nov-1

2

Jan-1

3

Mar-

13

May-1

3

Jul-1

3

Sep-1

3

Nov-1

3

Jan-1

4

Mar-

14

May-1

4

Jul-1

4

Sep-1

4

Nov-1

4

BRA CHI COL MEX PAR PER URU

Page 15: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 15

Central banks will maintain a wait-and-see stance in 2013, except in BRA and MEX

Balance between uncertainty on the external sector and strond domestic demand will determine stable interest rates, except in MEX and BRA

Mexico: interest rate cut, anchored inflation and easing of the monetary policy in the surrounding economies

Brasil: monetary tightening will be kept due to the continued inflationary pressures

Less lax monetary policy in 2014, in the Andean countries and Paraguay. Interest rate cut in Uruguay

Monetary policy rates (%) Source: BBVA Research and Haver

0

2

4

6

8

10

12

Jan-1

2

Mar-

12

May-1

2

Jul-1

2

Sep-1

2

Nov-1

2

Jan-1

3

Mar-

13

May-1

3

Jul-1

3

Sep-1

3

Nov-1

3

Jan-1

4

Mar-

14

May-1

4

Jul-1

4

Sep-1

4

Nov-1

4

BRA CHI COL MEX PAR PER URU

Page 16: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 16

Domestic and international backdrop will keep appreciating pressures

Pressions come conditioned by the monetary expansion programs of the developed economies, now including Japan

The active role of the central banks will continue in BRA, COL, PER and URU to moderate appreciations

Exchange rates against USD in countries with inflation targets (% change jan-dec) Source: BBVA Research and Haver

-10

-8

-6

-4

-2

0

2

4

6

8

10

BRA CHI COL MEX PAR PER URU

2012 2013 (f) 2014 (f)

Page 17: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 17

Improving trend in the fiscal balance, except in the Andean countries Fiscal balance (% GDP) Source: BBVA Research and Haver

Dynamism of the domestic demand will lead to increase tax revenue in the region

Fiscal balances will improve in the region, except in the Andean countries

Fiscal balance worsens in Colombia, due to the slowdown of the contracyclical fiscal stimuli

In Chile, convergence to structural balance. In Peru, decreased superavit due to the contracyclical impulse of the public expenditure -4

-3

-2

-1

0

1

2

3

ARG BRA CHI COL MEX PAN PAR PER URU

2012 2013 (f) 2014 (f)

Page 18: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 18

1. A more uneven global scenario

2. Latin America remains strong

3. Latin America must not lose sight of the long-term picture

Contents

Page 19: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 19

The region has achieved high growth rates with low levels of vulnerability in recent years

Latam new normal: higher growth and lower vulnerability

Progress to medium level of GDP per capita and credit rating

Progress in reducing the poverty and the social inequality

Increasing middle class

Sovereign rating by regions: 2007-2012 Sourcee: BBVA Research

AAAAA+

AAAA-A+

AA-

BBB+BBB

BBB-BB+

BBBB-B+

BB-

CCC+CCC

CCC-CC

DEurozone

(core)Eurozone

(Periphery)

Investment grade

EmergingEurope

Latam EM Asia

Page 20: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 20

But the region must improve its productivity

Sustainable growth due to the accumulation factor (especially labor force): around 85% of the total

Acumulation of capital benefited by consensus on prudent economic handling: the effects are disapearing

Low saving and investment rates compared to Emerging Asia

Contribution of the labor factor for the reduction in the unemployment rate: also with natural limits

The challenge: keep the GDP per capita growth rate in Latam

The region has to recognize that sustainable growth requires an improvement in productivity

There does not appear to be consensus in the region that productivity growth is essential for maintaining GDP growth

Structural reforms are needed: improvement of the business climate and more competition

It is needed to increase the savings rate to fuel investment in physical (above all infrastructures) and human capital

Until now From now on

Page 21: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 21

The world economy continues to grow, but there is an increasing uneveness between the different areas, especially within developed countries

The international backdrop continues to present major challenges for the region, including moments of extreme market volatility, a downward trend in commodity prices and increased capital inflows

Domestic demand will underpin sustainable growth in the region. Latin American GDP will grow at 3.5% in 2013 and 3.7% in 2014, if Brazil finally recovers

Central banks will maintain a wait-and-see stance in 2013, and begin to raise interest rates early in 2014. The exceptions are Mexico, with a reduction of the rates in the third quarter, and Brazil, where upward adjustment will continue

The region should promote reforms to increase productivity and consolidate long-term growth. If the region wants to consolidate its high rates of growth, it has to recognize that sustainable per capita income growth cannot be based solely on capital accumulation and increasing employment: productivity also has to improve

Main messages

1

2

3

4

5

Page 22: LatAm Economic Outlook 2Q13: Latin America remains strong

Latin America remains strong

Juan Ruiz

BBVA Research│Chief Economist for South America

Latam Economic Outlook–Second Quarter 2013│ Madrid, 14th May 2013

Page 23: LatAm Economic Outlook 2Q13: Latin America remains strong

Latam Economic Outlook / May 2012

Page 23

FX markets, percentage change since BoJ QE announcement (%) Source: BBVA Research, Bloomberg

Debt markets. 10Y Government yield change since BoJ QE announcement (4-April, bp) Source: BBVA Research, Bloomberg

-3 -2 -1 0 1 2

UK pound

Mexican peso

Euro

Renminbi

Canada dollar

Turkish lira

Brazilian real

Swiss Franc

Swedish Krona

Japanese yen

USD appreciation

USD depreciation

Annex: Japan’s monetary easing has had a positive effect on markets though there is volatility risk

-100 -80 -60 -40 -20 0 20

Japan

UK

S Korea

Canada

Germany

USA

France

China

Australia

Mexico

Brazil

Italy

Ireland

Spain

Portugal

Turkey