Summary

Marcos focused his conference call on Latin America, and his outlook on the region for the coming months and years. The threat from the pandemic remains high across the region, deaths in Argentina, Colombia and Brazil remain high, as well as Chile even with their extensive vaccinations campaign. This has had short-term impacts, with new lockdowns put in place and mobility indicators have suffered a setback. The good news for Latin America comes from the external environment – commodity prices have soared ahead of the US dollar, which increased the terms of trade and has exports increasing between 10 – 30% year over year, with Latin America in a good position compared to previous cycles. Capital flows are improving, looking at equity and debt securities inflows which have been very high in previous months. Apart from Argentina, all Latin currencies are weaker than the historical average, giving the region some buffer in case of a taper tantrum, with a starting position far better than that from August 2013.

Monthly activity indicators are rising with economies rebounding, particularly in countries with an expansionary policy set, namely Chile. Marcos looked at whether the future would look like a dead cat bounce or more structural recovery. Within the region, potential GDP growth has slowed down, going off Alberdi Partners’ estimates and government figures, through low investment and growth in productivity being low or even negative across the region. A cyclical recovery is supported by the boost in exports and through short-term expansionary monetary policy as inflationary pressures increase with the economy reopening. Monetary policy has been supportive of growth in countries like Peru, Chile, and Brazil, by allowing their banking system to continue expanding corporate credit. Marcos sees contracting fiscal policies in 2022 and onwards given the debt levels at highs from this year and the last year. Fiscal adjustment in the reason can create great tension, with presidential approvals low and people taking to the streets to protest.

Marcos’ outlook on Argentina is dependent on the mid-term elections and the aftermath, expecting the government to not do well with most political analysts predicting a tie, which would signal a victory for the government coalition. If the government does not do well, there will be expectations of a regime change in 2023, which would be a good sign however would mean the rebuilding of Argentina’s economy for the next administration will be difficult. For Brazil, there will be pressure for more social spending however there is less of a headwind from the political view, with it unlikely to see a full turnaround of policies like will be the case in Peru and Chile. With Chile, Marcos is not optimistic for the constitutional convention to draft the constitution full of social rights, with a high cost. Even in the best scenario, there will be lower growth and more macro political volatility ahead in Chile, with less domestic savings and more volatility when there is a shock and there is the possibility of seeing a lost decade. With Colombia, there will be a high-risk premium going ahead and the risk of having a leftist government for the first time in Colombia, is very high. Colombia’s political history has been centre right / right, however with leftist becoming more mainstream, Marcos believes Petro has a chance in the next election, leading an activist government. With Peru, locals believe that the trick of a candidate who runs on a populous platform but governs as a centrist will repeat. We are more sceptic this time with Castillio. At the very least, Peru will see lower growth in the short term, with the currents continuing to slip despite the central bank’s attempts to slow this down.

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