Latin America: Coface Outlook Post-Commodity Bust
Global credit insurer Coface’s latest economic Panorama focuses on Latin America. Growth in the region has been slowing since 2011. This lackluster situation, caused by weak domestic fundamentals, has been exacerbated by cyclical factors since the second half of 2014. In 2015 Coface notes a further deterioration of the downward trend, with regional GDP expected to contract by 0.2%. It will be the first recession since 2009, when activity shrunk by 1.4% due to the subprime crisis.
The study focuses on three Latin American countries: Argentina, Colombia and Ecuador. Argentina will hold presidential elections in October and is expected to breakeven in 2015. Colombia showed strong performance in 2014 but has been losing momentum due to the effects of lower oil prices. Ecuador’s economy is also continuing to be heavily affected by the low level of oil prices.
The second part of the Panorama provides the latest updates to Coface’s Latin America sector barometer. This section reviews the financial performance of companies in different industries, highlighting where risks have increased and where they remain stable. A special focus is paid to particularly sensitive industries – agro-food in Argentina and retail in Colombia.
Regional deceleration in 2015
The main negative contribution will come from countries of the Atlantic, where Coface expects Brazil to contract by 2.5% and Venezuela by 7% in 2015. Chile and Peru are the only two main economies that should report a slight improvement this year.
In 2016, growth will come out the negative territory with a meager 0.8%. The relatively improvement in growth in 2016 should come from a lesser recession expected for Brazil in 2016.
Negative Currency Impact
The downward currency movement was reinforced by the recent strengthening of the US dollar, based on the perception that the US economy will outperform other economies over the coming months, and by the expected tightening of US monetary policy.
Consequently, the five main free floating currencies in Latin America (the Brazilian Real, the Colombian, Chile and Mexican Pesos and the Peruvian Novo Soles) have all depreciated sharply.
Most sectors now classified as high risk
In Latin America, sector risk has generally increased in recent months, against the backdrop of lower commodity prices and their subsequent effects on trade. Most sectors are now classified as high risk.