As a whole, Latin America is expected to return to a growth path in 2017 (GDP +1,0%) thanks to the exit from the recession of the countries of the Atlantic coast (with the exception of Venezuela) while those of the Pacific are seen to grow in 2017 at a rate (2,0%) slightly lower than that seen in 2016, due to the expected slowdown in Mexico, Chile and Peru. This year, the boost to growth is expected to come from domestic demand, while foreign demand is seen to make no contribution due to the recovery in imports.
The countries of the Atlantic, specifically Brazil and Argentina, are reaping the first fruits of fiscal and monetary stabilization policies recently pursued and some reforms of the economic system. In the first half of 2017, the GDP trend dynamics in the Pacific countries slowed down to 2% compared to +2,5% in the same period of 2016. The economy was negatively affected by climatic events (floods, fires due to drought in Chile and Peru) and the relative weakness of the demand for capital goods following the uncertainty regarding the cycle of exported raw materials and the trade policy of the USA.
The return of inflationary pressures and the further re-appreciation of exchange rates allowed for further interest rate cuts. New quite widespread relaxing actions are expected by the end of the year.
The expected gradual recovery of growth and the full deployment of fiscal consolidation measures are expected to initiate, starting from 2017, a process of gradual contraction of the deficit and of the public debt in relation to GDP in the majority of the countries of the region. While Brazil and Mexico have a higher debt-to-GDP ratio than similarly rated countries, the others are below.
In 2017 the re-appreciation phase of Latin American currencies that began in 2016 (after the large depreciation recorded in the two-year period 2014-15). The recovery of the nominal exchange rate in the face of a still relatively high rate of inflation led to a general appreciation of the effective real exchange rates and eliminated some of the undervalued conditions in which the currencies of the Latin American countries found themselves. Only the currencies of the oil-producing countries, namely Mexico and Colombia, remain in an undervalued condition.
In Latin america, in the first half of 2017, there was an improvement in the commercial and current position thanks above all to the recovery in the prices of exported raw materials and the continuation of the phase of relatively weak demand for imported capital and intermediate goods.
From January to August 2017, all stock indexes have a positive sign and the CDS spreads have narrowed. This year only the Chile was the subject of a rating downgrade by both Fitch and S&P. However, this country's debt maintains the highest rating in the region (A for Fitch, A+ for S&P and Aa3 for Moody's). With regard to the other countries, the agencies acknowledged the progress made by some (primarily Brazil, Mexico and Argentina) on the road to reforms and stabilization of the macroeconomic framework but confirmed the previous assessment due to the uncertainty due to the forthcoming electoral deadlines regarding the continuity of these policies.
