The Economic Climate for Latin America worsens

The Economic Climate Index (ECI) for Latin America falls in the 2nd quarter of 2023, influenced by the worsening 
of evaluations on the present economic situation. Expectations have improved but remain in the adverse zone. 
According to the specialists consulted, the lack of confidence in local economic policy continues to be one of 
the main problems for economic growth in the region.

The Economic Climate Index (ECI) for Latin America decreased from 73.4 points to 65.8 points between the 1st
and 2nd quarters of 2023 (Graph 1). The result is explained by the drop in the indicator that measures the 
perception of the specialists regarding the Present economic situation (PSI), which fell 24.7 points between 
the first two quarters of 2023. In contrast, the indicator measuring Expectations (EI) gained 10.2 points, 
climbing to 80.3 points, recovering part of the losses suffered in the previous quarter. All the indicators remain 
in the adverse zone in evaluations of the economic climate (Graph 2).

Table 1 summarizes the Economic Climate results for the largest economies in the region monitored by FGV 

When comparing the first two quarters of 2023, the economic climate improved in Chile, Uruguay, and
Colombia. For all the other countries, a decrease in the indicator was observed. In the case of Brazil, the
indicator fell from 73.5 points to 58.8 points, a drop of 14.7 points. Uruguay and Paraguay are in the favorable
zone of evaluation, despite the latter having registered a decrease of 22.4 points for the indicator. 
The PSI worsened in all the countries. The largest fall of 42.0 points was recorded in Brazil, which dropped 
from 70.6 to 28.6 points. The PSI for Brazil is the fourth lowest on the list in the 2nd quarter of 2023, above 
only Argentina, Chile, and Bolivia. Paraguay is the only country in the favorable zone, with 130.0 points, and 
Uruguay is in the neutral zone (100.0 points).

The Expectations Index fell in Ecuador (41.6 points), Argentina (41.3 points), and Paraguay (25.0 points), but 
improved in the other countries. The cases of Chile and Uruguay stand out for recording increases of 60.0 
points on the EI. Brazil improved from 76.5 points to 92.9 points in the comparison between the first two 
quarters of 2023. Paraguay, Uruguay, Peru, and Chile are in the favorable zone of the EI. 

The economic crisis in Argentina is reflected in the evaluation of the indicators, as it recorded the lowest ECI
(7.0 points), the lowest PSI (0 points), and the lowest EI (14.3 points) among the analyzed countries. In the 
opposite direction, Chile stands out for recording the highest positive variation in the ECI and the EI (together 
with Uruguay, in this case), and the lowest fall in the PSI. However, the country is not in a favorable situation 
as all the indicators are in an adverse situation, with the exception of the EI, and the PSI only reached 20.0 

In the case of Brazil, the worsening in the evaluation of the present situation surpasses the improvement in 
expectations. Moreover, as the EI is in the adverse zone, the outlook does not indicate an optimistic scenario 
(favorable) for the economic climate.

Graphs 3, 4, and 5 show the results of the indicators for the selected countries in the first two quarters of 

The worsening in the economic climate for Latin America is reflected in the downgrade in GDP growth 
forecasts for 2023, which went from 1.4% to 1.1% between the surveys of the 1st and 2nd quarters of 2023. 
With the exceptions of Colombia and Chile, the forecasts were for lower growth than previously expected for the year. The largest difference occurred in Argentina, where the previous forecast of 1.2% growth became a decrease of 1.0%. In Brazil, growth was revised from 1.1% to 1.0%. It can be observed that the improved outlook for Chile, from an expected decrease of 1.8% to a fall of 0.3%, coincides with the evaluation of the indicators of improvement in the economic climate, especially that of expectations.

Main problems faced by the largest economies in the region 

Table 2 shows the importance the specialists attribute to the list of issues presented as barriers to the 
economic growth of the countries. Scores vary from 0 to 100 points. Scores above 50 points indicate that the 
issue is relevant, and the higher the score, the greater its relevance. If the score is below 50 points, the theme 
is not relevant, and the lower the score, the lesser the relevance. The table is ordered according to the 
importance of the problems for the Latin America group (Table 2). 

The main problems – those that recorded scores above 50 pointsfor Latin America – were, in decreasing order: 
inadequate infrastructure; corruption; lack of innovation; widening income inequality; lack of confidence in 
the government's economic policy; lack of international competitiveness; legal and administrative barriers for 
business; insufficient demand; lack of skilled labor; unfavorable climate for foreign investors; political 
instability; and capital shortage. Of the 15 problems listed, 12 score above 50 points. 

In the case of Brazil, the five highest scores, in decreasing order, are: inadequate infrastructure (92.9 pts.); 
widening income inequality and lack of international competitiveness (85.7 pts.); insufficient demand (78.6 
pts.); corruption, lack of innovation, and lack of confidence in the government's economic policy (71.4 pts.); and lack of skilled labor and inefficient debt management (57.1 pts.). Of the 15 problems listed, nine score 
above 50 points, which puts the country in a better position among the Latin American group. 

What problems are not relevant for Brazil but are for Latin America? Political instability, unfavorable climate 
for foreign investors, and legal and administrative barriers for business. Regarding this aspect, according to 
the Survey, Brazil guarantees a more favorable environment for investment in comparison to other countries 
in Latin America. 

Further relevant data extracted from the Survey refers to the percentage of specialists that selected the main 
problems in their given country (Table 3). In Brazil, 64.3% selected lack of confidence in the government's 
economic policy, a higher percentage than in the 4th quarter Survey of 2022, which was 46.2%. However, the 
topic of political instability, which recorded the same percentage, is no longer among the main problems on 
the Survey for the 2nd quarter of 2023. The second problem was inadequate infrastructure and widening 
income inequality, and the third was lack of international competitiveness. For Latin America, the main 
problem is lack of confidence in the government's economic policy (56.3%), followed by corruption (39.8%) 
and inadequate infrastructure (25.8%). It can be observed that lack of confidence in the government's 
economic policy is not cited among the three main problems in the selected countries only in Uruguay.

Special polls

The Credit Suisse crisis together with the Silicon Valley Bank bankruptcy in the United States led to speculations of a shock to the international financial system reminiscent of 2007/08. In this context, the group of specialists that participate in the Survey were polled as to how they evaluate the impact of this crisis on the economies of their respective countries. In the aggregate response for Latin America, 69.1% consider that there will be no effect on the economies of their country’s economy and 23.3% said that there will be impacts (Table 4). The countries with percentages above 40% for the responses with effects on domestic economies are Chile, Paraguay, and Uruguay. These are economies with high degrees of financial openness, which may be why they have this perception. 

Among those that answered that there would be impacts on their economies, for Latin America, a percentage of 65.3% considered that the effect would be medium. In the countries where the responses were above 40% regarding the impact of the crisis, in Chile, the impact was considered medium (42.9%) or low (57.1%). In Paraguay, 50% considered that the effect would be low, and, finally, in Uruguay, 100% thought it would be low. 
In the countries where over 40% of the responses were that the crisis could affect their respective economies, the 
expected effects tend to be low. 

The result for Latin America is due to the perception that the crisis of the two institutions cannot be compared to the 
crisis of 2008. Therefore, this is not a relevant issue for the economic climate of Latin America in the present context and confirms that lack of confidence in economic policy is considered the main problem.