Economic Expectations worsen for the world, Latin America and Brazil, according to study
Economics
10 August 2018

Economic Expectations worsen for the world, Latin America and Brazil, according to study

The Ifo/FGV Economic Climate Index for Latin America (ECI) – developed in partnership between the German institute Ifo and FGV – has fallen back into the unfavorable range since April 2018.

Following the positive results shown in January 2018, the Ifo/FGV Economic Climate Index for Latin America (ECI) – developed in partnership between the German institute Ifo and FGV – has fallen back into the unfavorable range since April 2018. The ECI’s downward trend was confirmed by the last Survey, dropping -5.2 points, down to -21.1 points between April and July. Satisfaction with the current situation (ISA) continued to fall, and the expectations index (IE), which had been positive since July 2016, dropped to 24.7 points in April and reached zero points in July, equaling the share of positive and negative assessments.

Although still positive, the global ECI fell 16.5 points, down to 2.9 points. The two indicators that make up the ECI retreated and, while the assessment of the current situation remained positive, the expectations index was down to its lowest level since October 2011. The indicators’ downward trend covered almost all regions and countries.

Only India recorded a favorable situation among the BRICS, although the ECI fell 28.5 points. Russia was the only one among the selected countries where the ECI improved, although still lingering in the unfavorable range. Brazil recorded the worst ECI, very close to South Africa.

ECI results divide the selected Latin American countries into two groups: The first consists of countries that recorded an improvement in the economic climate: Bolivia, Colombia, Peru and Mexico. Bolivia stands out after shifting from a negative to a positive assessment between April and July, making it to the favorable expectations range, while the ISA left the neutral to the positive range, influenced by the increase in the price of natural gas and minerals. Colombia and Peru improved their positions, while Mexico showed an improvement in its negative ECI value.

The second group comprises countries with worse ECI results. Argentina and Uruguay went from a positive to a negative result. In Argentina, the indicator dropped from 10.7 points to -51.3 points. This result is explained by the government’s struggle to resolve the tax issue, control inflation and the external deficit in a scenario with a bearish bias. Chile and Paraguay had worse assessments of the economic climate, but remain in the favorable range. Ecuador and Brazil had worse assessments, but were already in the unfavorable range in April.

In Brazil, the ECI went from -11.4 points to -45.9 points, with positive prospects, however less favorable, after dropping from 47.8 points to 12.0 points. There is also lower satisfaction regarding the current situation, which reached -88.0 points, meaning that a high percentage of experts considers the situation to be unfavorable. Meanwhile, uncertainties surrounding the upcoming presidential elections and the downward review of GDP growth projections also push expectations down.

ECI results for the world and major economies reflect a time of adverse expectations. From a global point of view, the fear of escalation of a trade war is at the top of the list. In Latin America, the international scenario also affects results. However, the results shown in each of the region’s countries is explained by domestic economic conditions, especially in a year of presidential elections.

Go to the website to read the complete study.