Credit rating consultants Moody's has warned that inflation and political risk will undermine Latin America's growth through 2023 amid recession both globally and in the region's main economies.
The agency argues that the ongoing supply chain crisis is speeding up inflation and deteriorating the purchasing power of Latin American consumers, which is causing a tightening of monetary policy globally and increasing volatility in financial markets, asset revaluations, in addition to tighter credit conditions, which boils up to a decline in growth and investor confidence.
In this context, the credit quality of non-financial and infrastructure companies in Latin America will be diverse: we expect issuers in Colombia and Mexico to have sufficiently solid credit quality to cope with the current growth slowdown, while issuers in Argentina, Brazil, Chile and Peru will experience a deterioration in their credit quality, said Moody's Director Marcos Schmidt.
According to the agency, macroeconomic imbalances will put pressure on Argentine companies through 2023, while the strength of gross operating profit (Ebitda) and cash generation of companies in Brazil will decline through 2023, weakening the credit quality of rated companies overall, while the credit quality of non-financial companies in Chile will deteriorate through mid-2023 due to high inflation and interest rates.
In Peru, the credit quality is also expected to deteriorate, while Colombia should hold its economic dynamism despite the inflationary shock.
Moody's also foresees strong liquidity and low dependence on external funding amid tighter credit conditions due to the cycle of interest rate hikes.
Commercial banks in the region have historically had robust liquidity buffers and steady access to structural deposits, a Moody's report released Friday read.
Medium-sized and smaller banks with debt maturities in 2022 have sufficient cash and liquidity to meet their obligations, and may be able to cover part of their funding needs through domestic markets, it added.