WASHINGTON – In terms of economic growth rates, no country in Latin America is growing slower than Brazil in 2017, 2018 and 2019, according to a World Bank assessment.
In real GDP terms, Mexico (EWW) and the tiny Central American states are projected to grow 2.1% in 2017, then 2.4% in 2018 and 2.7% in 2019.
Mexico is the growth driver. Even with Trump’s border wall and anti-NAFTA rhetoric, Mexico is expected to grow at 1.8%, 2.2% and 2.5%, shows the WB report released on June 4.
Brazil’s rival, Argentina, will grow at 2.7%, then 3.2% over the next two years.
Within South America, average growth will be 0.3% (thanks to Brazil), then rise to 1.9% next year and 2.3% in 2019. In every year, compared to every country American investors can invest in through pure-play exchange traded funds, Brazil (EWZ) underperforms.
Brazil’s GDP is forecast to grow just 0.3% this year, 1.8% next year and 2.1% in 2018, making it “the biggest…and baddest…economy” in the region.
Rising unemployment, now over 12%, high credit costs and continued political tensions extended deep declines in private consumption and investment over the last two years. Interest rates are coming down, but there is enough political uncertainty out there that not too many investors are willing to double down. This is particularly true among local corporations.
Brazil has a general election in October 2018 that could kill the current reform push favored by the business and investing classes. President Michel Temer may be forced to step down if a recent investigation by a higher court rules that he and his impeached former colleague Dilma Rousseff used undocumented campaign donations, possibly from bribes, to fund their 2014 re-election bid.
The medium-term outlook for Brazil is further constrained by the need for private and public sector deleveraging, following a rapid increase in debt prior to the 2015–16 recession.
Brazil’s diverse economy makes it a favorite spot for equity investors, and its generally high interest rates and transparent monetary policy make it a favorite among carry-traders and fixed income investors worldwide. So far this year, the Brazilian stock market has underperformed all of the major Latin American markets with accompanying exchange traded funds, namely Chile (ECH), Peru (EPU), Colombia (GXG) and Mexico.