Latin American Economic Climate improves and enters favorable zone after 18 quarters

Developed by the German Institute IFO and Fundação Getulio Vargas, the indicator will now start to reflect the balance between the ratio of positive and negative assessments regarding the region’s economies.
经济学
23 二月 2018
Latin American Economic Climate improves and enters favorable zone after 18 quarters

In January 2018, the Economic Climate Index for Latin America (ECI-LA) revealed positive figures for the first time in 18 quarters. Developed by the German Institute IFO and Fundação Getulio Vargas, the indicator will now start to reflect the balance between the ratio of positive and negative assessments regarding the region’s economies. The balance of 1.5 percentage points (p.p.) recorded last month was the largest since April 2013 (1.6 p.p.). 

Such improvement was driven by the higher Current Situation Index (ISA), which still portrays a weak economic environment, but leaped 12 points, from -43.8 points in October 2017 to -31.8 points in January 2018. In the same period, the Expectations Indicator (IE) backed down 16.6 points. The balance of 41.3 points still reveals an optimistic outlook for the next six months.

“The result is positive for Latin America, but results from the rest of the world – particularly among developed economies – point towards a consolidated expansionary cycle,” said Lia Valls, economist from FGV’s Brazilian Institute of Economics (IBRE). In the global scenario, the ICE has been on an upward trend since January 2016. 

In January 2018, the Global ICE reached 26.1 points, with improvements in both the current situation and the expectations indicators compared to October 2017. The main economies of the developed world showed better positive balances, except for the United Kingdom, which is still in the red range. Some of the highlights are the improved balance in the United States (20.2 points between October 2017 and January 2018), followed by Japan (11.6 points), and France (11.4 points). 

The balance of the BRICS group (Brazil, Russia, India, China, and South Africa) increased from 7.0 points to 16.6 points, mainly driven by India’s performance. The Indian ICE leaped from 13.8 points to 43.9 points, up 30.1 points in the period. All other countries in the group showed improvements in economic climate and have made it into the favorable range of the cycle, except for South Africa. The second best result comes from China, with a balance of 7.7 points. 

The comparison between the ICE of Latin America and other groups of countries shows that the region is still far from the favorable climate leading the expansionary cycle across the global economy. The balance of OECD countries is +33.8 points, and the balance of emerging economies in Asia is 23.6 points, while the ASEAN-5 group (India, Malaysia, Philippines, Thailand, and Vietnam) recorded an average of 44.0 points. Latin America is only above the Middle East and North Africa, which are struggling with unfavorable economic climates. 

In the group of 11 countries selected for the Latin America survey, seven countries are in the favorable range (positive balance). Four of these have recorded progress in a positive balance between October 2017 and January 2018: Brazil, Chile, Colombia, and Paraguay. In Chile, the indicator went from -2.0 to +26.3 points – possibly due to the ‘positive shock’ caused by the new administration, elected in November 2017. Another country that has gone from a negative to a positive balance was Brazil: from -8.3 in October 2017 to 4.3 points in January 2018. In this case, the improvement is attributed to a lower negative balance of the current situation (-73.9 to -53.6 points). The balance of expectations retreated from 91.3 to 85.2 points, despite still being extremely positive. 

Argentina and Peru have maintained favorable climates, but showed decreases compared to October. In Argentina, the ICE went from 45.2 points to 28.2 points, revealing a worse assessment of the current situation and expectations. In Peru, there was an increase in the ISA (despite still negative) and an increase in the IE.

Bolivia and Ecuador remained with an unfavorable economic climate, although they recorded smaller negative balances compared to October 2017. In the northern hemisphere, the improvement in the economic climate of the United States did not affect Mexico, which still showed a negative balance. The current situation assessment was unfavorable and has not changed, but the expectations balance went from positive to negative. Uncertainties in both the economic (direction of NAFTA negotiations) and political scenarios (results of the upcoming presidential election in July 2018) explain such shift in expectations.

The complete study is available on the website.

 

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