Fitch ratings has lowered Argentina, Venezuela and El Salvador credit and growth prospects to negative, while for the rest of Latinamerica the situation remains stable, according to a seminar in Frankfort, on “Latinamerica opportunities and challenges”.
“Weak external conditions, stable prices for commodities and the lack of significant reforms can possibly subtract value in 2013 to the rapid solvency improvements registered in Latinamerica until now”, says the Fitch conclusion.
Fitch also believes that “external uncertainties could impact the solvency of countries with limited backup and weak political frameworks”, although it estimates the region’s GDP to expand 3.7% this year compared to 2.8% in 2012.
The forecast is highly influenced by an expected sprint from the Brazilian economy which is Latinamerica’s largest although there are also risks in the current recovery.
Growth will be spurred by domestic demand in a scenario of weak global growth while macroeconomic stability will be speared by moderate inflation rates in most countries.
The head of Fitch’s Latinamerican sovereign debt department Shelly Shetty anticipated Mexico and Brazil are forecasted to expand 3.5% and 4%. Bolivia, Chile, Colombia, Panama, Peru, Surinam and Uruguay are going to have a performance above the region’s average of 3.7%, with Panama leading.
However Argentina, El Salvador, Jamaica and Venezuela will be growing below the region’s average of 3.7%.
The main outside risks for the region’s growth and credit prospects include the US fiscal gap, intensification of the Euro zone debt crisis and faster economic deceleration than expected in China.
“All these factors could weaken external demand and the prices of commodities more than expected” warned Fitch Ratings, which anticipated that fiscal consolidation in 2013 will be slower since there will only be a moderate fall of public debt in most countries of the region.
Chile and Peru are the countries better positioned to implement fiscal stimuli to compensate for potential external impacts.
Fitch estimates that international reserves in the region increased to 812 billion dollars from 494 billion in 2008 and also anticipated political continuity in Chile and Ecuador following parliamentary and presidential elections.
Finally it considers the consolidation of democracies in the region has reduced the risks linked to violent changes of regime. “The expansion of the middle class and a continuous fall in income inequality in the region should support political and social stability in the future”.