Latin America's economic climate worsens with less favorable expectations

The Ifo/FGV Indicator of the Economic Climate (ICE) in Latin America — developed in partnership between the German institute Ifo and FGV — returns to the unfavorable range in the second quarter.
经济学
10 五月 2018
Latin America's economic climate worsens with less favorable expectations

After recording a positive balance of 1.5 points in January, the Ifo/FGV Indicator of the Economic Climate (ICE) in Latin America — developed in partnership between the German institute Ifo and FGV — returns to the unfavorable range in the second quarter, with a balance of -5.2 points. The worsening of the ICE was influenced mostly by the Expectations Indicator (IE), which remains positive, but backed down 16.6 points between January and April. The Current Situation Index (ISA) was relatively stable in the negative range.

The region’s indicator followed, in broad lines, the behavior of the World ICE, although the latter remained favorable. The World ICE went from 26.1 points in January to 16.5 points in April, as the ISA remained stable and the IE dropped from 23.9 points to 6.1 points, in the same period. This drop broke the improvement trend seen since October 2017. The result indicates that the world economy is still in an expansive cycle, but suggests a potential deceleration in the pace of economic growth in the second half of the year.

Although the main economies in Europe, United States and Japan recorded positive economic climate indicators, the decreases of approximately 22.0 points in the United States and Japan draw attention. In the U.S., the IE went from positive to negative; in Japan, it remained positive, but dropped 22.3 points. The United Kingdom recorded an improvement in the ICE, but still in the unfavorable range.

Among the BRICS, India and South Africa are in the favorable range and have shown an improved economic climate between January and April. In South Africa, the indicator went from negative to positive, associated with a more favorable international scenario due to increased commodity prices and better expectations regarding productive investments. The climate in Russia and Brazil took a turn for the worse. In Brazil, the ICE fell from 4.3 positive points in January to 11.4 negative points in April. The ISA remained relatively stable, but expectations dropped from 85.2 to 47.8 points – the worst result since July 2017 (34.6 points).

In the group of 11 countries selected for the Latin America survey, five recorded worsened economic climates. The biggest setbacks between January and April were in Argentina (-17.5 points), Brazil (-15.7 points), and Peru (-11.3 points). Despite this significant drop, Argentina and Peru remained in the favorable range.

On the other hand, Brazil shifted toward the unfavorable climate range. The most relevant issues were corruption and inadequate infrastructure, both with 90.9 points. The highlights above 80 points were insufficient demand; increase in income inequality; and lack of international competitiveness. The following were not considered relevant issues (below 50 points): debt management; favorable climate for foreign investors; and performance of the Central Bank.

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