The credit rating agency Fitch Ratings (FR) estimated, through a bulletin, that the economic activity in the region will rise by 2.20% in 2018 but also warned that there are risks that could put pressure on the ratings of some countries.
Recovery of global production, improvements in domestic demand of Latin American economies and favorable conditions in the prices of raw materials will be key for 2018 according to the report “2018, Sovereigns of Latin America: a Cyclical Rebound in the Middle of the Stabilization of Prices of Basic Products “of FR.
The estimate, however, is far from what was recorded between 2010 and 2013, where the average was 4.00% of GDP growth in the region.
One of the main risks facing this region is the growth of trade protectionism and the even stronger immigration controls in the United States. Another matter that is against them is that external financing is even more strict due to more conservative monetary policies, as well as elections in several countries. This was what the agency explained as the expected risks.
In addition, they commented that the electoral period can further affect confidence and thus provoke greater volatility in the prices of assets, this can also distract from reforms and weigh on the recovery of the economy, especially in countries like Brazil and Mexico.
It adds, according to FR, the nervousness generated by the US administration embodied in President Trump about the North American Free Trade Agreement (NAFTA).
Regarding the different instruments that were issued by the economies, FR commented that the sovereign notes would stabilize in 2018, the lower potential growth and the different growing debt burdens meant that, without counting the additional reforms, the countries of the region will remain vulnerable to shocks and the ratings could decrease.
The Central Bank of Brazil (BCB) adjusted short-term interest rates to record lows and slipped the idea of a possible smaller reduction at the beginning of 2018 but with caution. This was stated by the BCB in its monetary policy newsletter.
The COPOM or monetary policy committee, which consists of nine members, decreased the SELIC rate – Special System of Liquidation and Custody in Portuguese: the model used to intervene the market and modify the monetary policy in the South American economic colossus – by 50 basis points until it reached a 7.00%.
Since a year ago, the BCB has accumulated a dynamic adjustment of 725 basis points, which has given results that it has emerged from one of the strongest recessionary processes in its economic history.
The increase in public debt is among the main challenges and risks of the economy – together with Mexico – the largest in the region; next to this risk, the uncertainty regarding inflation remains below the official target, according to experts.