Economic climate in Latin America improves in third quarter, led by expectations
Fundação Getulio Vargas’ Latin American Business Confidence Index improved in the third quarter of 2020, from minus 59.91 points to minus 43.2 points. The index remains in the unfavorable zone of the economic cycle but has gained 16.7 points compared to the second quarter.
The Business Confidence Index is based on the geometric means of the Current Situation Index and Expectations Index. The difference between these two indicators in the third quarter, 139.1 points, was an all-time record. The Current Situation Index fell between the second and third quarters of 2020, from minus 89.6 points to minus 98.0 points. On the other hand, the Expectations Index went from minus 22.3 points to plus 41.1 points. The improvement in economic climate is therefore explained by the reversal of expectations, which went from pessimistic to optimistic, while evaluations of the current situation worsened.
According to the specialists consulted in the survey, the crisis has now reached its worst moment, but going forward, the region’s economy will enter a recovery phase.
“The unanimous view is that the current situation remains serious. The Current Situation Index in Brazil, Chile, Ecuador, Mexico, Paraguay and Peru is now minus 100 points. However, specialists understand that the COVID-19 crisis is a crisis involving a demand and supply shock, not a permanent situation. Six months from now, the signs are that this effect will have passed, but trade protectionism is likely to persist to some extent,” said Lia Valls, an economist and associate researcher at FGV IBRE.
The survey asked specialists whether they believe that the current protectionist trend will continue after the end of the COVID-19 crisis. Across Latin America, more than half (59.8%) of specialists partially agree that trade protectionism will continue, while 25.5% fully agree. Just 3.1% disagree, partially or completely. The situation is the same in Brazil, where 25% of specialists said they fully agree and 56.3% partially agree that protectionism will persist. In Latin America as a whole, therefore, the expected scenario in world trade is for increased protectionism.
Countries’ responses to health and economic crises
The survey also sought to find out the factors that may have an impact on economic activity in these countries. According to Valls, there were notable responses to two questions, about the measures taken to minimize the effects of the health and economic crises. Across Latin America, 52.8% of specialists said that not enough action has been taken to fight the pandemic, while 45.4% said that not enough measures to protect the economy have been taken. In this item, results above 50 are important factors, while those below 50 are insignificant.
In nations such as Brazil and Argentina, the responses to these two questions were very different. In Brazil, 23.5% of specialists said that the government’s economic response has been insufficient, while 70.6% said that not enough action has been taken to fight the pandemic. In Argentina, the results were the opposite: 0.0% of specialists said that not enough action has been taken to combat the health crisis, i.e. they unanimously agreed that the government has done a good job, but 63.6% said that not enough has been done to protect the economy. Chile, Colombia and Uruguay had the lowest percentages of specialists saying that not enough action has been taken to combat the crises. They all came below the average for Latin America as a whole.
The complete study is available here.