Latin America is expanding at a 'two-speed' rate according to the latest report from the Spanish bank BBVA, pointing out that the Pacific Alliance is expected to grow 2.5% in 2015/16, while Mercosur will be lagging with a contraction of 2% to 1.5%.
The overall data shows that the region will remain stalled in the two year period and well below its potential. However BBVA Research points out that Paraguay, Peru and Colombia will be the countries with the best performance in 2015/16.
The Spanish bank lowered all growth expectations for most countries of the region because of the global uncertainty caused by the poor performance of the Chinese economy and volatility of the world financial system.
Paraguay is the Mercosur member expected to lead in an overall contracting group, but has also seen its growth prospects lowered from 3.7% to 3.2% this year while for 2016, the estimate is 3.4%. This much linked to how the region evolves. However Paraguay remains a magnet for foreign direct investment.
More specifically regarding Latin America's largest economy Brazil, the report underscores that it will undergo two years of strong recession, 2015/2016 with a direct impact on the rest of its Mercosur partners. The political situation which remains unsolved and the delay in approving a package of fiscal measures and reforms will prolong recession and put pressure on inflation and the exchange rate.
As to the currencies in the region, most are estimated will continue to depreciate because of the fundamentals (domestic and foreign) decline and the fact the Federal Reserve is expected to begin a round of increases in the basic rate.
However currencies from Chile, Colombia and Mexico could experience a slight appreciation in this scenario, points out the BBVA report.
The Pacific Alliance is made out of Chile, Peru, Colombia and Mexico, while Mercosur includes Argentina, Brazil, Paraguay, Uruguay and Venezuela with Bolivia in the process of incorporation.