Latin America was also affected by the trend where international investors often hold their breath at elections alongside the voting population. Against this background, the past twelve months in the region have been extremely exciting, with important elections being held in four countries in an environment of falling approval ratings for a working democracy. Centre-right governments (at least) were elected in Chile and Colombia, which represents a pragmatic approach as far as economic policy is concerned. The electorate in Mexico and Brazil, however, continued to “venture towards the fringes”. While a candidate to the left of the political spectrum – Andres López Manuel Obrador (AMLO) – emerged as the winner in Mexico, the right-wing Jair Bolsonaro was victorious in Brazil. This means we now have some clarity at least as to who holds the fate of the respective countries in their hands. However, one can only speculate right now about the direction or the manner in which the countries will be governed. While Bolsonaro’s most recent statements (on personnel matters and pension reform among other things) was well received by market participants, AMLO unsettled the markets recently with his various comments or initiatives (including plans to bring the construction of Mexico City airport to a halt). The extent to which the shifts to the left (in Mexico) or to the right (in Brazil) will lead to calmer times or to ongoing nervousness will be evident in 2019.
The economic picture in the region is also expected to remain differentiated in the year ahead, even if momentum ought to ease, at least in the countries we are analysing. The economies of the Andes states of Peru, Chile and Colombia are likely to have the strongest presence, with Peru taking poll position with GDP predicted to rise by over 4% next year. Following a period of bumpy growth, there is hope that growth will accelerate slightly in the current year. The measure of this growth is also likely to depend on the extent to which the optimism associated with the new president is also reflected in the economy. Economic momentum in Mexico is expected to mirror that of the current year (GDP forecast 2018: 2.1%). While the trade agreement between Mexico, Canada and the USA has removed a (major) uncertainty, AMLO’s latest statements and measures raised new concerns. Their implications for the economy are still difficult to assess and generated considerable nervousness recently. This is after the signs initially pointed more to a “market friendly” scenario immediately after the July election.
Latin America will be marked by challenges next year too, just like in 2018. Countries such as Chile and Peru in particular – whose fundamental frameworks are less susceptible overall – are likely to be relatively well-equipped to face these. Colombia’s indicators on the other hand are not yet devoid of deficits and the rating agencies will continue to keep the country on watch. Nonetheless, the picture looks somewhat brighter, especially since the new government is pursuing a policy of prudence. In Brazil and Mexico, a lot will depend on what political line the new presidents will take, thus opening up opportunities and risks at the same time. The change of government in Mexico is now entering the critical phase and nervousness has heightened in recent weeks. Brazil on the other hand was recently viewed with great euphoria, despite our reservations as to whether expectations – particularly in relation to the critical fiscal indicators – will actually be met (as easily).