The Economic Climate for Latin America improves in the first quarter, led by Brazil, the largest economy in the region

The Economic Climate Index (ECI) for Latin America climbed 3.7 points between the 4th quarter of 2023 and the 1st quarter of 2024, maintaining the economic climate in the favorable zone of the indicator for two consecutive quarters for the first time since 2018. Recording 105.7 points, the ECI reached its highest value since the 1st quarter of 2013 (109.8 points).

The improvement in the ECI was driven by the growth in the Expectations Index (EI), which rose by 5.7 points to reach a value of 113.7 points. The increase occurs after a drop of 6.2 points in the previous quarter. In the case of the Present Situation Index (PSI), there was a rise of 1.8 points, confirming the upward trend that began in the 2nd quarter of 2023. Nevertheless, the PSI of 98.0 for the quarter failed to reach the neutral level of 100 points and remains in the adverse zone.

The results for the 1st quarter of 2024 were compared to the same period in 2021, 2022, and 2023. All the indicators record an improvement in relation to the selected quarters, except the EI of the 1st quarter of 2021. In relation to the 1st quarter of 2023, however, the current EI is 43.6 points higher. The highest gains in relation to 2021 and 2022 occur in the PSI, with differences of 78.6 points and 51.8 points, respectively. As such, the PSI for the 1st quarter of 2024 presents the highest level of the last four years.

Economic climate: Results by country 

Table 2 provides a summary of the Economic Climate results for the largest economies in the region monitored by FGV IBRE. The ECI improved in all the countries, except for Mexico and Chile, whose indicators decreased 27.5 and 7.9 points, respectively. Despite the fall, Mexico remains in the favorable zone alongside Paraguay, Uruguay, and Brazil. In spite of recording an increase in the ECI, the other countries remain in the adverse zone. 

Regarding the PSI, of the 10 analyzed countries, five recorded a decrease in the indicator (Mexico, Colombia, Chile, Ecuador, and Bolivia), the largest fall being in Colombia (-18.3 points); four improved (Paraguay, Uruguay, Peru, and Argentina), the largest gain being that of Uruguay (60 points); and one remained stable (Brazil). The same countries that are in the favorable zone for the economic climate are those that are in the favorable zone for the present situation, these being Paraguay, Uruguay, Mexico, and Brazil, whose indicator is at the neutral level (100 points). 

The EI remained stable in Paraguay and decreased in Uruguay and Mexico. There was an improvement in all the other countries, with Colombia standing out with a rise of 60 points. Except for Ecuador, Argentina, and Bolivia, all the other countries are in the favorable zone of the evaluation.

Among the largest analyzed economies, Brazil, Colombia, Peru, and Argentina were those that most contributed to the increase in the ECI for the region. Mexico, the second largest economy in the region, made a negative contribution, a fall that occurs after the country led the improvement in the ECI in the 4th quarter of 2023. 

Graphs 3, 4, and 5 show the results for each country’s indicators in the 4th quarter of 2023 and the 1st quarter of 2024. The results for Brazil are noteworthy, as, after worsening between the 3rd and 4th quarters of 2023, they improved in the latest survey or remained stable (PSI).

GDP growth forecasts for 2024

Graph 6 shows the specialists’ GDP growth forecasts for 2024 made in the 4th quarter of 2023 and the 1st quarter of 2024. In this edition of the Survey, the largest upward revisions occurred in Uruguay (+2.4 percentage points), Chile (+2.3 p.p.), and Peru (+2.0 p.p.). The downward revisions did not reach one percentage point, as in the case of Brazil (-0.9 p.p, the largest negative variation), Ecuador (-0.8 p.p.), Argentina (-0.7 p.p.), and Paraguay (-0,5 p.p.). The growth forecasts for Bolivia and Mexico remained stable (- 0.1 p.p.), as did the forecasts for Colombia (+ 0.2 p.p.). 

The 0.2 percentage point (p.p) reduction in the GDP growth forecasts for Latin America is explained by the results for Brazil and Argentina, given that the forecasts for the second largest economy remained practically stable. At the same time, it is worth highlighting the expected improvement in growth in Uruguay, Chile, and Peru.

Table 3 shows the incidence of responses in relation to the changes in the forecasts. In the group of analyzed countries, 53% of the consulted specialists responded that they revised their forecasts. In 52% of the cases, the revision was of reduced growth. This is a relatively balanced result that led to little alteration in the forecasts.  

Table 4 shows the factors justifying positive revisions in the GDP forecasts. The specialists can select more than one factor. The improvement in international conditions (40.1%), followed by new stimulus measures (28.4%), and an improvement in the political environment (20.3%) were the main factors indicated for optimistic revisions in the GDP of the region. In the case of Peru, an outlook of improvement in the mining sector and the reduced impact of El Niño were also cited (others, 66.7%), in addition to the improvement in the political environment (66.7%). In Mexico, the fact that a perspective of recession in the United States and of a rearrangement in global supply chains were not confirmed collaborated to sustain investments in the country (others, 100%).  In Argentina, the low risk of economic collapse and the perspective of an agreement with the International Monetary Fund influenced the construction of better short-term expectations for some analysts (others, 100%). In Brazil, the reduction in the interest rate was highlighted among “others” (33.3%), but the same percentage of responses was also given for the improvement in international macroeconomic conditions, the improved political environment, and new stimulus measures.

There is a great deal of heterogeneity in the responses among the countries when analyzing each case and in the level of consensus in the revisions. In the case of Brazil, 50% informed that they revised their forecast upwards and 50% revised downwards. It should be emphasized that the GDP revision for Brazil was negative, as shown in Table 3, with external conditions, the political environment, a worsening in the fiscal situation, and a reduction in exports being cited by most of the specialists (66.7%). The internal macroeconomic conditions obtained a lower percentage (33.3%).

For Latin America, among those that opted for downward revisions of the GDP growth rate (Table 5), Internal macroeconomic policies, the political environment, and the international conditions led the responses for the region. Among the “others”, the fiscal situation, the exchange rate, and the political conduct of the President were cited in the case of Bolivia; in Ecuador, the crisis in public security stood out; in Peru, the international context was indicated as a relevant factor; and in Paraguay, the argument was based on comparison with 2023, when the GDP recorded a high rate of growth. No responses were obtained for Uruguay, but the improvement in their GDP forecasts may be associated, to a large extent, with the end of the drought that damaged exports and growth in 2023.

Special polls 

Two special polls were carried out for this edition of the Latin American Economic Survey. The first refers to the worsening of the security crisis in Ecuador in January 2024, which is associated with drug trafficking and the difficulties of the government in dealing with the crisis. As expected, in the countries geographically close to Ecuador, the specialists responded that the crisis could affect their economies, as in the case of Colombia and Peru. For Brazil, there was a consensus that the security crisis would not affect the economy (Table 6).

Table 7 enquires as to the dimension of the impact for the country’s economy. In Colombia, despite all the specialists believing there would be an impact from the crisis in the neighboring country, most of the specialists consider that the impact will be low (88.9%). In Peru, 50% believe that the impact will be medium and 16.7% believe it will be high; together, the percentages are higher than the opinion of those that believe the impact will be low. 
For Brazil, the theme is not relevant. In 2023, Ecuador’s participation in the total exports from Brazil was 0.3%, and in imports, only 0.05%. Among the Cone Sul countries, only in Paraguay was the impact considered relevant, with 50% of the specialists indicating that the impact would be high, while the other 50% do not see the crisis as a factor that could interfere in the domestic economy. 

The second poll refers to the election of Javier Milei as the President of Argentina. The first question asks if the specialists believe there will be an effect on the economy of their country. Responding with percentages above 50% were Bolivia, Brazil, Chile, Paraguay, and Uruguay, as these are countries with which Argentina has more relevant commercial relationships, as well as geographical proximity. It should be emphasized that a worsening of the crisis in Argentina is expected given the fiscal containment measures that are reflected in a greater drop in GDP in 2024 than in 2023, as shown in Graph 6.

Regarding the intensity of the impact, in the abovementioned countries, the medium impact option predominates in Uruguay (80.0%), Brazil (77.8%), and Chile and Paraguay, with 50%, each. The exception was Bolivia, where 50% of the specialists responded that it would be high. The channel for the impact is trade, as the financial ties between Argentina and these countries are small. 

It can be observed that the Argentina crisis has reduced their participation in Brazilian trade. In January 2024, Argentina’s participation in Brazilian exports was 2.8%, the lowest percentage in the historical series for the month, being below that of the crisis period of the 2000s, when the percentage was 3.5%.

Finally, as expected, the impact of Milei’s election is relevant for all the specialists consulted in Argentina, with 75% of the specialists considering that the impact will be high.