As pointed out in a recent article written by John Manners-Bell and myself, the outlook for emerging markets is perhaps not quite as rosy as it used to be. While this statement is true, there’s plenty of variation in performance by region which I thought I would take a closer look in to. This is the first in a series of blogs where I will take a look into the economic prospects of emerging markets. First up is Latin America & Caribbean.
Latin America & Caribbean
First of all, to give the following analysis context, it is worth noting that the three largest economies in Latin America & Caribbean – Brazil, Mexico and Argentina – account for about two-thirds of the region’s total output. Brazil accounts for about one third, Mexico about a quarter and Argentina about 10%. Now, on to prospects for the year ahead.
The World Bank expects Latin America & Caribbean GDP growth to rise modestly from 2.5% in 2013 to 2.9% in 2014, a relatively muted recovery compared to other regions. However, this disguises significant inter-regional differences.
Developing Central and North America’s GDP growth rate is predicted to rise from 1.7% in 2013 to 3.5% in 2014. This is largely on the back of Mexico, whose GDP growth is expected to be 3.4% in 2014 compared with 1.4% in 2013. Its performance, as ever, is largely tied to the fortunes of the US economy, which is expected to grow by 2.8% in 2014, up from 1.8% in 2013. In addition, many analysts have credited Mexico for structural reforms in its energy and labour markets as well as its fiscal policy to curtail national debt.
GDP forecasts are also positive for the Caribbean, with growth expected to increase from 2.2% in 2013 to 3.4% in 2014. Note however that the Caribbean accounts for only 1% of regional GDP.
Holding back the region is South America, whose growth is predicted to drop from 2.7% in 2013 to 2.6% in 2014. More specifically, Brazil will grow by just 2.4% in 2014 compared to 2.2% in 2013, and Argentina’s growth will weaken from 5.0% in 2013 and 2.8% in 2014. Brazil’s growth forecast has been tempered by interest rate increases in 2013 which look to have at least temporarily arrested the depreciation of its currency. The value of the Brazilian real fell by almost 20% against the dollar from May 2013 to the end of the year. Brazil’s struggles, like several other emerging markets, have been blamed on the US Federal Reserve monetary tightening policy. In very simple terms, as interest rates rise and quantitative easing falls in the US, expect emerging markets to suffer. Brazil looks to be chief among the sufferers. On the plus side, higher public investment mainly on account of the upcoming World Cup in 2014 and Olympics in 2016 is boosting growth in the country. Argentina profited from very high crop yields in 2013 which boosted export volumes by 22% year-on-year to November 2013. It probably won’t be as lucky in 2014.
Taking a look at trade, one major risk the region faces is the downward trend of commodity prices which threatens to lower export incomes. According to the World Bank, in dollar terms, prices of agriculture products, metals and precious metals fell 7.2%, 5.5% and 16.9%, respectively, in 2013. The falls are expected to continue in 2014. Related to this is the potential of weaker commodities demand from China, a major customer of many Latin American countries. On the other hand, infrastructure improvements such as the expansion of the Panama Canal should push trade up, at least for Central America. In addition, the Western world’s recovery, and most significantly the US recovery, will bolster demand for the region’s exports. Latin America’s currency depreciations in 2013 have made their exports cheaper going in to 2014 though imports more expensive. Putting all these factors together, the World Bank expects the region’s export volumes to grow by 4.0% in 2014 compared to 2.2% in 2013. On the other hand, imports will fall from growth of 3.7% to 3.1%.
Next week I’ll be taking a look at how Middle East & North Africa will fare in 2014. The original article that this blog relates to can be downloaded from our website as a whitepaper by following this link. It was also available to subscribers of our Logistics Briefing service which you can subscribe to here.