Dai focus Intesa Sanpaolo, during the first months of 2015 in Brazil trade slows down (-5,7%), due to the drop in raw material prices and domestic demand. Exports (225 billion dollars, -7,1%) are lower than imports for the first time (229 billion, -4,4%). Commercial exchanges are carried out mainly with Asian and American markets, in particular with China (17%), USA (14%), Argentina (6%), with the importance of China growing exponentially over time. Europe supplies and buys just under a quarter of the total traded, where Italy ranks sixth among the major suppliers with a share of around 4% (equal to 7,8 billion euros, down by 5,9% over last year), while it is in 11th place among customers with less than 2%. The merchandise detail sees, among imports, the prevalence of machinery (29%), minerals (21%), chemical products (17%), means of transport (10%) and metals (6%); among the exports, agro-food products (36%), minerals (22%), machinery (8%), means of transport (7%) and metals (7%) stand out. The net balance is positive for agro-food products, minerals, metals and wood, while it is negative for energy minerals, machinery and chemicals.
The stock of foreign direct investment (FDI) in Brazil in 2013 amounted to $720 billion (32% of GDP). The major investors in 2013 were, after the USA, Spain, Belgium and the United Kingdom, with Italy placed in 8th place. The main target sectors are those relating to manufacturing, finance and mining. In this scenario, the Ministry of Foreign Affairs (MAE) detects commercial and investment opportunities in the oil and energy industry, utilities, construction, tourism and machinery sectors.
In ArgentinaInstead, GDP growth is expected to recover slightly, despite the increasingly difficult financing of the public and current deficits. With the focus now on the presidential election next October. Last year, the slowdown in the economy that began in the second half of 2013 worsened. The trend in GDP went from +5,2% in the second quarter of 2013 to -0,8% in the third quarter of 2014. In the first nine months of 2014, GDP recorded a growth of 0 compared to +2,9% in the previous year. Some recent positive data regarding domestic demand and agricultural production have led analysts to forecast a timid recovery during 2015 (+0,4%).
In January, the official inflation rate was 20,8%.. According to the estimates published by Intesa Sanpaolo, inflation would instead travel close to 40%. At the same time the Argentine peso continued to depreciate against the dollar, losing 30% of its value in 2014 and a further 3% in the first two months of 2015, reaching 8,70 ARS:1 USD. The measures to partially liberalize currency purchases taken at the beginning of 2014 have had little success and around 14 ARS:1 USD are being asked on the unofficial market. The wide gap between the official rate and the non-official rate, the high inflation and the difficult financial situation suggest that the depreciation phase is destined to continue.
Argentina's current account shows a sizeable trade surplus and a deficit on the income account, mainly determined by the remuneration of foreign debt and capital invested in the country. Reserves, equal to 26 billion dollars in January 2015, compare with an estimated external financial requirement equal to 38,5 billion dollars (reserve cover ratio at 0,8). However, the external position is less weak than the low level of reserves would indicate: at the end of 2013, the stock of foreign assets of residents, mainly deposits, exceeded their liabilities, mainly FDI, by 49 bn (8% of GDP). At the end of September 2014, foreign debt amounted to 145,4 billion, of which 48% guaranteed by the state. Financing the public and current deficits is proving to be increasingly problematic due to the decline in foreign exchange reserves (-45% from the peak reached at the beginning of 2011). Argentina's currency sovereign debt is considered selectively defaulted by both Fitch and S&P's, while Moody's added a negative outlook to its Caa1 rating.
The scenario changes if we move in Columbia, where we find slowing dynamics and a deteriorating fiscal and external position due to the economy's high exposure to hydrocarbons. In 2014, GDP growth, while remaining strong, slowed down to 4,6%, from 4,9% in 2013. The negative trend of the hydrocarbon market, the fiscal restriction and the loss of purchasing power are factors destined to weigh on domestic demand. On the other hand, manufactured exports are expected to benefit from buoyant US demand and currency depreciation while housing development and infrastructure upgrade plans will continue to support construction activity. Official predictions of Central Bank indicate GDP growth of around 3,5% both in 2015 and next year. The drop in the price of oil (hydrocarbons contribute to more than 50% of exports) has accentuated the depreciation of the peso, which lost about a quarter of its value in 2014 and a further 10% in the first quarter of 2015. The COP/USD ratio of 2650 in mid-March returned to the levels of ten years ago. The real effective exchange rate has depreciated by 20% over the past two years, returning below its long-term average. And even the new target deficit of 2,8% appears difficult to reach since current oil prices are much lower than the approximately USD 70 official estimates.
The balance of payments of Colombia presents a structural current account deficit (on average equal to 2,8% of GDP in the last ten years) mainly determined by the remuneration of foreign funds invested in the country and, to a lesser extent, on the services side. The trade balance records a contained surplus, thanks to exports of hydrocarbons, minerals (gold) and agricultural products (coffee) largely balanced by imports of investment goods and durable and semi-durable consumption. The transfer account benefits from remittances from Colombian workers employed abroad. The current deficit is more than offset by the financial account surplus, mainly due to FDI and portfolio investment. Colombia has seen its foreign exchange reserves quadruple in the past decade, but the reserve cover ratio remains below 1. Colombia's foreign currency sovereign debt is considered a "non-speculative" investment by rating agencies (BBB by S&P and Fitch , raised last July to Baa2 Moody's).
In Venezuela, the fall in oil prices further accentuates the structural imbalances of an economy in recession, public deficit and inflation out of control, currency in free fall. In the first nine months of 2014, GDP decreased by 4% in real terms, compared to the +1,3% of the previous year. The difficulties have accentuated in the last six months, leading to a fall in GDP for the entire year estimated at between 4,5% and 5% compromising the room for maneuver for policies in support of growth. Increases in wages and benefits, highly likely in an election year, are unlikely to offset high inflation. The GDP is expected to fall again sharply in 2015 (-7%) and in 2016 (-6,1%). The annual rate of inflation accelerated to 68,5% in December, from 56,1% a year earlier, a rise in prices also expected this year. With the currency reform of early February, a third market was established, called Simadi, where individuals and businesses can obtain currency from banks and exchange offices authorized for free exchange, with the aim of reducing the spaces for the unofficial market and eliminating some of the distortions of the old one. The first allocations were made above VEB 170 : 1 USD, not far from the quotes on the unofficial market.
Venezuela recorded a current structural balance of payments surplus (3,2% of GDP on average for 2010-2014, substantially down from the average 8,1% in the previous five years) determined by the trade surplus (95% of exports made up of hydrocarbons). The financial account shows a deficit due to private capital outflows, only partially offset by loans from foreign partners, FDI and from the collection of the state oil company PDVSA and other state-controlled entities. During 2015 an average oil price of 55 dollars a barrel would lead to a current deficit of around 12 billion. The 2015 reserve cover ratio is estimated at 0,6. The collapse in the price of oil has made it even more difficult to adjust the deep imbalances in the economy and has increased the risk that the country will not be able to meet its financial commitments. In recent months, the rating agencies have again cut their respective ratings by Venezuelan currency sovereign debt, now considered to be at high risk of default (CCC from CCC+ for S&P's; CCC from the previous B for Fitch; Caa3 from Caa1 for Moody's).
