The Economic Climate Index (ECI) for Latin America climbed from 99.6 points to 102.0 points, putting the region in the favorable zone of the indicator. It is the highest value since the 1st quarter of 2018, when it recorded 102.6 points, after which the ECI was only in the favorable zone in the 3rd quarter of 2021 (101.4 points).
The improvement in the ECI is associated with the behavior of the Present Situation Index (PSI), which increased by 10.5 points between the 3rd and 4th quarters of 2023 to reach a value of 96.2 points. The Expectations Index (EI) remained in the favorable zone with 114.2 points, although it dropped 6.2 points in relation to the 3rd quarter. The growth in the ECI for Latin America in the 4th quarter was exclusively due to the gains recorded in the Present Situation Index.
Table 1 shows the difference in points for the 4th quarter results for 2023 in relation to the same period in 2020, 2021, and 2022. In comparison to 2022, the largest gains were in the EI (41.9 points), although there was also an improvement in the evaluation of the present situation. In the case of 2021, the largest contribution to the improvement in the ECI came from the PSI, which rose 38.2 points. In the 4th quarter of 2020, the world was living an acute phase of the COVID-19 pandemic, as such, a large difference in relation present situation of 2023 was to be expected (76.6 points). However, the result for the EI is noteworthy, as in the 4th quarter of 2023, Latin America decreased in relation to the expectations in 2020. In the 4th quarter of 2020, the EI was 142.8 points at a time of favorable expectations with the advance of the vaccines. At the end of 2023, the EI stands at 108.0 points with uncertainties in the world economy associated with the conflicts in the Middle East that may have influenced the result.
Economic climate: Results by country
Table 2 provides a summary of the Economic Climate results for the largest economies in the region accompanied by the Latin American Survey. Mexico leads the increase in the ECI with a gain of 22.8 points in relation to the previous quarter. All of Mexico's indicators are in the favorable zone (above 100 points). Chile was the only other country to record an advance in the ECI with gains in both the EI and the PSI, although all its indicators are in the adverse zone, except for the EI. In addition, the gain in the ECI was only 4.0 points.
All of the other countries lost points on the ECI evaluation, the largest losses being those of Bolivia (28.8 points), Paraguay (23.5 points), Brazil (21.4 points), and Peru (20.5 points). Even with these significant losses, Paraguay and Uruguay remain in the favorable zone, while Brazil is on the boundary, with an ECI equal to 100 points.
In the comparison between the 3rd and 4th quarters, Mexico, Chile, and Colombia recorded improvements in the evaluation of the present situation. However, only Mexico and Paraguay are in the favorable zone. Brazil’s evaluation did not change.
In the evaluation of expectations, Mexico, Uruguay, and Peru gained points. Brazil recorded a loss of 44.4 points and moved to the neutral zone. The countries with indicators in the favorable zone are Paraguay, Mexico, Uruguay, Chile, Peru, and Colombia.
In summary, eight countries recorded a decrease in the ECI, as did six countries in the PSI, with one country maintaining the same position, and six countries in the EI, with one country maintaining the same position. Of the 10 countries selected for analysis, 80% decreased in the ECI and 60% in the PSI and EI.
How can the improvement in Latin America be explained?
The aggregated index for Latin America is constructed as a mean of the country indexes weighted by the GDP of each country corrected for Purchasing Power Parity (GDP PPP). According to IMF data, Brazil has the largest GDP, followed by Mexico. As the gain for Mexico was above two digits, it had a strong influence on the overall result. If Mexico is removed from the equation and the index is calculated only for South America, the results follow that of Brazil. Between the 3rd and 4th quarters of 2023, the ECI for South America decreased from 91.3 points to 69.3 points, the PSI from 69.3 points to 65.6 points, and the EI from 91.3 points to 76.7 points. The following graphs show the results of the indicators for the selected countries.
GDP growth forecasts for 2023 and 2024
For 2024, the specialists forecast a decrease in the GDP growth rates of Paraguay, Mexico, Brazil, Bolivia, and Ecuador in relation to 2023; although the differences remain less than 0.5 percentage points (p.p.). The other countries record an improvement, especially Uruguay, which shows an increase from 0.9% to 3.0%; Peru, which increases from 0.4% to 2.5%; Chile, which goes from negative growth of -0.7% to 1.2%; and Argentina, which records a reduced decrease in growth, from -2.2% to -0.1%.
Main problems in the selected countries
Table 3 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. Of the 15 problems listed, 11 had scores above 50 points. Among the main problems scoring over 60 points are lack of innovation; inadequate infrastructure; corruption; lack of international competitiveness; lack of confidence in the government's economic policy; and lack of skilled labor.
The lowest score refers to the lack of credible Central Bank policy, with 12.2 points. The topic did not register a score, that is, is not perceived as an issue that affects economic growth in Brazil, Chile, Colombia, Mexico, Peru, and Uruguay. On the other hand, this is a serious problem for Argentina and Bolivia, scoring above 90 points. The positive evaluation for monetary policy under the guidance of the Central Banks in almost all the countries differs from the score attributed to economic policy in general. Only Brazil (38.5 points) and Paraguay (11.1 points) do not consider this issue as a relevant obstacle to economic growth.
In the Survey of the 4th quarter of 2022, the five biggest barriers to growth in Brazil, which received scores above 90 points, were lack of innovation; inadequate infrastructure; lack of international competitiveness; widening income inequality; and lack of skilled labor. In the Survey of the 4th quarter of 2023, no issue scores more than 90 points. In descending order, the following issues above 50 points stand out: lack of innovation; inadequate infrastructure; lack of international competitiveness; corruption; lack of skilled labor; and widening income inequality with a score of 50. According to the indicators of the current Survey, Brazil is in a better situation in terms of the issues that may affect growth than in the 4th quarter of 2022.
Further relevant data extracted from the Survey refers to the percentage of specialists that selected the main problems in their given country. In the Survey of the 4th quarter of 2022, Brazil’s result showed that 46.2% selected lack of confidence in the government's economic policy, with the same percentage also selecting political instability. In second place, with percentages of 38.5%, were inadequate infrastructure and widening income inequality. In the Survey of the 4th quarter of 2023, the main problem is inadequate infrastructure, selected by 26.9% of the specialists, and in second place, lack of confidence in the government's economic policy lack of innovation, lack of international competitiveness and lack of skilled labor with the same percentage. Widening income inequality is in third place with a percentage of 15.4%. Once again, the results show an improved evaluation of the country’s situation. The theme of political instability did not continue among the main problems and the percentage for lack of confidence in the government's economic policy decreased, as did that of widening income inequality. Some structural issues stood out, such as infrastructure, innovation, and skilled labor, which demand public policy programs with horizons beyond the short term.
Among the 10 countries analyzed, five highlighted lack of confidence in the government's economic policy as the main problem. Inadequate infrastructure is the main problem for Brazil and Peru, while for Ecuador and Uruguay, political instability was the most relevant issue. The specialists from Ecuador and Mexico indicated lack of international competitiveness and corruption as key issues. Furthermore, Mexico also stands out for lack of innovation.