March 30, 2016 – NAI Global 2016 Outlook: Latin America & the Caribbean

By Dr. Peter Linneman, NAI Global Chief Economist

Latin America is a tale of two markets – Brazil and Mexico, with each having vastly different economic circumstances.

Brazil is in the midst of a severe economic stagnation as GDP has contracted 1.5%+ in the first half of 2015.

This has been driven in equal measure by falling commodity prices, the rising SELIC interest rate (which has been raised 7 times over the trailing 12 months through October 2015), and the return of heavy handed bureaucratic interventions. Housing prices have fallen over 2%, and the Brazilian real (R$) has depreciated over 55% against the U.S. dollar in the past 12 months; the worst of almost any emerging market currency. Once the U.S. Fed begins raising rates, the flow of capital out of Brazil is likely to increase. The government is “investing” in jobs, in low cost housing, focusing on poverty reduction and ultimately hoping that the 2016 Olympics will have a miraculous impact on the country. Much like last year’s World Cup, the impact is unlikely to change the country’s fortunes, and is largely wasting scarce capital.

Mexico presents a vastly different economic story. GDP growth has been 2-2.5%. It is important to remember the extent to which Mexico’s fortunes are tied to the U.S., its largest trading partner, to whom it sends nearly 80% of its exports. The rise in export driven manufacturing (and all the related business demand) is driving consumer spending, as the middle class continues to grow and expand. The country has further benefitted from low interest rates, a limited fiscal deficit and a strong construction sector. While Mexico has seen undue violence (particularly drug related), it has been somewhat contained and has not had a notable impact on either the economy at large, or investor interest.

Full market report found here: https://naibg.com/pdf/Press/LAC-4Q15-Market-Report.pdf