Latin America: Drop in Consensus Expectations

LACF Chart

In Brazil, the release of the Q2 national accounts surprised on the upside after the economy bounced back by 3.3% from a year earlier. The upturn in activity compares with a more subdued reading of 1.9% in the first quarter, and in q-o-q terms, GDP growth accelerated to 1.5% in Q2, up from 0.6% in the three months to March. By output breakdown, the primary driver of growth was agriculture, which grew by 13.0% (y-o-y), but both manufacturing and services also reported firm gains during the second quarter. On the demand side, gross fixed investment recovered by 9.0% (y-o-y), although both household and government consumption remained soft. While the recent upturn in growth is encouraging, it remains to be seen whether this firmer pace of activity can be sustained through the rest of the year. With strong inflation eroding consumers’ purchasing power and high interest rates also taking their toll on domestic demand, the economy is facing many challenges on the growth front. However, the recovery of Brazil’s key trading partners, as well as the sharp depreciation of the real, should prove beneficial for the country’s external sector.

Mexican GDP forecasts for 2013 have tumbled this year and fell again this month. Expectations for 2014 have also dipped (see chart below). The recent deterioration in sentiment stems from a 0.7% (q-o-q) fall in Q2 GDP, the first time in four years that Mexico has seen a contraction. This was due mainly to lower government spending and lacklustre export demand. Moreover, on the domestic demand front, retail sales fell in both m-o-m and y-o-y terms in June while fixed investment declined by 3.1% (y-o-y), pulled down by a 7.2% collapse in construction spending. Manufacturing output did report a +2.8% (y-o-y) turnaround in July (following June’s 1.2% drop) which suggests a reversal for industry on the back of stronger US indicators. However, concerns over weaker activity have pushed Banco de México to act quickly –the central bank cut its reference rate from 4% to 3.75% on September 6 in a surprise move.


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