World Economy

Latin America Growth Unclear

Recession in Argentina is complicating matters.Recession in Argentina is complicating matters.

Over the past two years, Latin America has experienced one of its worst drops in economic activity since the ‘80s. And Brazil, the regional giant, has a lot to do with it.

Brazil has been mired in a recession that’s even worse than the one it suffered before the currency devaluation of January 2002. The recession has had a spillover effect, stunting gross domestic product growth throughout the region, WorldCrunch reported.

Recession in Argentina this year is complicating matters as well. There’s also the crisis in Venezuela, which is something of a case apart. The best performers in 2016 are expected to be Peru and Panama, followed by Colombia, Mexico and Chile.

Brazil’s economy shrank 4% in 2015. A similar negative figure is expected this year. In keeping with cyclical theories, things are likely to bottom out soon. Analysts predict that its growth rate could stabilize in the third quarter of 2017 and gain momentum in the fourth. Nothing to celebrate, perhaps, but it will at least signal a turning point for producers and consumers to regain confidence.

Portfolio investors (rather than investors in the real economy) have already had their confidence boosted by stock market returns. Brazilian share prices are encouraging. That’s because the markets are always several months ahead of the curve.

After two years of flight, speculative capital returned to the region in December 2015. In the world of currencies, the Brazilian real appreciated most this past year (25%) after its dramatic fall. The rise, in turn, boosted the performance of Brazilian shares, which grew in value by 33% (as measured in reals).

The Argentine peso, at the same time, is losing value due to inflation. It’s also despite the massive inflow of hard currency through sovereign, provincial and corporate debt issues that followed the election of the conservative government of Mauricio Macri.

It’s difficult to say if the currency appreciation in Brazil is an isolated rebound or a more sustained trend reversal. The political context remains deeply troubling and corrective measures are not providing the expected results.

One thing is clear: Given Brazil’s economic clout in the region, it’s difficult to imagine any long-term growth in Latin America if the giant remains dormant.