LatAm Economic Outlook 2Q13: Latin America remains strong
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Transcript of 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
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
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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
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
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09
Oct
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10
Oct
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11
Oct
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12
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US Eurozone
Markets remained immune to risk events
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
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No
v-1
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12
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3
Feb
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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 ...
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
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Net exports Investment Consumption
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
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12
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Italy France Germany
Manufacturing confidence (PMI) Source: BBVA Research and Haver
Growth disappoints in Europe. The slowdown hits Europe’s core economies
Latam Economic Outlook / May 2012
Page 8
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Fed QE1 Fed QE2 Fed QE3 BoJ QQE
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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
Latam Economic Outlook / May 2012
Page 9
-4000
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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
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
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6
8
-2
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2013 2014 2013 2014 2013 2014 2013 2014
World USA Eurozone Eagles*
May-13 Feb-13
The sound global growth belies regional differences
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
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
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2.9
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2009 2010 2011 2012 2013 2014
- 2.2
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2.9
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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
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ARG BRA CHI COL MEX PAN PAR PER URU LATAM
May 2013 forecasts Feb 2013 forecasts
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
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May-1
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Jul-1
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Sep-1
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Nov-1
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BRA CHI COL MEX PAR PER URU
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
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Nov-1
2
Jan-1
3
Mar-
13
May-1
3
Jul-1
3
Sep-1
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Nov-1
3
Jan-1
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Mar-
14
May-1
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Jul-1
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Sep-1
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Nov-1
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BRA CHI COL MEX PAR PER URU
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
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4
6
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BRA CHI COL MEX PAR PER URU
2012 2013 (f) 2014 (f)
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
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-1
0
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2
3
ARG BRA CHI COL MEX PAN PAR PER URU
2012 2013 (f) 2014 (f)
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
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
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
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
Latin America remains strong
Juan Ruiz
BBVA Research│Chief Economist for South America
Latam Economic Outlook–Second Quarter 2013│ Madrid, 14th May 2013
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