The Economic Climate Index for Latin America falls once again with a worsening of expectations

The Economic Climate Index (ECI) for Latin America declines in the third quarter of 2022 in comparison to  the previous quarter under the influence of the significant worsening of expectations, and, to a lesser degree, evaluations on the present situation. This edition of the Survey also brings a poll on the persistent bottlenecks in the supply of inputs and raw materials, and identifies the main products that are out of stock or suffering delivery delays in the region.

Following the trend of decline begun in the fourth quarter of 2021, the ECI falls 12.6 points in the 3rd quarter of 2022, dropping from 67.3 points to 54.7 points. 

Both indicators composing the ECI record a decrease in relation to the previous quarter. The Expectations Index (EI) falls 21.7 points, to 65.5 points, while the Present Situation Index (PSI) loses 4.5 points, decreasing from 48.8 points to 43.3 points. The worsening in expectations sends a warning signal as it indicates that the specialists expect an economic slowdown for the coming months. All the indicators are in the adverse zone of the economic cycle.

In the table below, the results for the 3rd quarter of 2022 were compared to those for the same period in previous years. The EI and ECI for 2022 show a decrease in comparison with 2019, the greatest difference being in the EI (-51.7 points). In relation to 2020, there is an improvement in the PSI, but the other indicators are at a lower level. The largest decreases are recorded in comparison with 2021.

Economic climate: Results by country

Table 2 of the press release summarizes the Economic Climate results for the largest economies in the region monitored by FGV IBRE.

In the Table 2, the countries are ordered from the highest to the lowest variation in the number of points for the Economic Climate Index between the 2nd and 3rd quarter of 2022. The ECI only increased in two countries during this period: Paraguay (9.9 points) and Bolivia (1,7 points). The largest fall occurred in Uruguay (-27.0 points). Nevertheless, Uruguay and Paraguay are the only countries with an ECI in the favorable zone. In Brazil, the ECI decreased 8.2 points for the period.

The assessment of the present situation has improved in Colombia, Brazil, and Ecuador. In all these three countries, however, the worsening in expectations led to a fall in the ECI. In Brazil, the PSI improved 12.9 points, but the decrease in the EI was 33.3 points. In Colombia, the 51.9-point fall of the EI overshadowed the improvement of 15.7 points in the PSI. In Ecuador, the improved PSI (+3,8) also failed to compensate the worsening in expectations (-7.6 points) and the ECI fell 1.6 points. Colombia and Uruguay are the only countries in the favorable zone for the present situation. The worst assessment of the present situation is that of Argentina, with 6.7 points. 
There was an improvement in expectations in Paraguay (44.5 points), Bolivia (21.5 points), and Chile (7.0 points). In the cases of Bolivia and Paraguay, the result for the EI compensated the worsening in the assessment of the present situation, and both countries record an improvement in the ECI, which did not happen in Chile, where there was a decrease in the ECI. Colombia recorded the worst EI, with 21.4 points. 

In summary, the negative perspectives dominate the results of the economic climate in Ecuador, Brazil, Argentina, Colombia, Peru, and Uruguay. In Mexico, the trajectory is different, Whereby the fall in the ECI is associated with a greater decrease in the PSI than in the EI. For Paraguay and Bolivia, the improvement in the EI is greater than the decrease in the PSI and the ECI therefore improves. in Chile, despite the increase in the EI, the fall in the PSI led to a decrease in the ECI. 

Finally, Uruguay is the only country in the favorable zone for all three indicators.

Special poll: the supply problem 

The production and logistics chains that were getting reorganized in 2021 have been impacted by the lockdown in China and the war in Ukraine. An additional question included in the Survey for the 3rd quarter of 2022 asked the specialists if the productive sector of their country is facing problems with the supply of inputs and/or raw materials, the responses to which can be found in Table 3. Only in Argentina is there a predominance of responses that consider the supply problems to be severe. In this case, domestic issues of access to foreign currency to carry out international transactions must have influenced the responses. 

All the countries, except Argentina and Uruguay responded with percentages greater than or equal to 50% for “Yes, moderate/light problems”. The specialists in Uruguay evaluated that “We have not faced problems of this nature”. 
The case of Brazil stands out, where 13.3% responded that the problems were severe, which would be directly related to bottlenecks in the supply of chips and semiconductors. The responses of “moderate/light problems” also identify problems in the supply of chips and semiconductors. 

Graph 6 shows the distribution of the responses by product. The main bottlenecks are in agroindustry inputs (35%), followed by energy (14%), chips and semiconductors (13%), other inputs from the manufacturing industry (11%), and others (11%); the other percentages were below 10%. 

It is noteworthy that the main bottleneck is in agroindustry inputs. For Brazil, as previously mentioned, the issue does not appear to be a priority, despite the importance of the sector in Brazilian exports. In the comparison of the volume of accumulated imports up to July with the same period of last year, compost and fertilizers recorded a growth of 15%. Some agroindustry sectors may be having difficulties; however, the increased volume in the bundle of imports indicates that the supply of composts and fertilizers is growing. 

Table 4 of the release shows the time expected to normalize the supply of inputs and/or raw materials. The highest concentration of responses is in the 1st half of 2023 (35.6%) followed by the 2nd half (26.4%). Thus, the normalization of supply is expected in the first semester of 2023. In Brazil, 46.7% of the responses refer to the 1st half of 2023. 
The worst result is recorded in Argentina, with 33.3% of the responses for normalization being only in 2024, and with the same percentage for those that did not know. The crisis in Argentina with the scarcity of foreign currency would have influenced the responses.