Latin America’s economy, a driving force of global growth in the last five years, is slowing down. The International Monetary Fund predicted it when it downgraded its 2013 estimate for Latin America’s combined economies from 3.4 percent to 2.7 percent. Ratings agency Standard & Poor’s said on Thursday that Latin America will end the year with slower growth than initially expected -- and it is all Mexico's and Brazil’s fault.
Roberto Sifón-Arévalo, managing director in Latin America for Standard & Poor’s, said that the fact that the two largest economies have been growing less than expected has affected the whole region. “Both economies represent two-thirds of Latin America’s GDP, so if they are doing well, the whole area goes well. But if they are not doing well, then that is also going to have a negative effect,” he explained to Spanish financial newspaper Expansión.
In any case, S&P believes the pace will pick up in 2014, depending on a few factors. Sifón-Arévalo warned of foreign causes that could lead to further reductions in Latin American growth, like the financial situation in the U.S., which affects mainly Mexico.
S&P cut its prediction of Mexican GDP growth by half; by the beginning of 2013, it was expected that the economy would grow 3 percent, but now S&P forecasts growth of 1.5 percent. However, the slew of reforms approved by the Mexican government, particularly the tax and energy-sector reforms, will help. “The approval and introduction of the energy reform will be fundamental for Mexican economy,” said Sifón-Arévalo, who was optimistic for 2014 growth of 3.2 percent.
In the case of Brazil, the agency initially forecast growth of 3.2 percent, later revising it to 2.5 percent. “And I think we were generous,” said Sifón-Arévalo. Next year he expects it to be similar.
The managing director also had a few thoughts for Argentina and the country’s messy financial situation that includes rampant inflation -- currently at 25 percent -- and high taxes. “The macroeconomic situation in the country is deeply deteriorated, and we predict a complicated future,” he said.
In its last report, released in October, S&P forecast that Latin America would finish 2013 with “disappointing economic growth” and that 2014 looked “a little better.”