Mexico and Brazil stand out in a hard-hit region

An overcrowded population in crowded megacities, poor transportation, crumbling infrastructure, and inadequate medical care meant that Latin America had a difficult Covid-19 pandemic.

And recovery has also been complicated.

Investors never had much faith in the region’s politicians, but that faith has eroded further. The International Monetary Fund (IMF) forecasts regional growth of 3.5% this year, slowing to 1.7% in 2023.

According to IMF estimates, Latin America’s share of global GDP will fall to 7.3% this year from 8.5% a decade ago and is likely to decline further.

Mexico and Brazil are exceptions. Both are in relatively good shape. That has been reflected in asset prices.

The Mexican peso is trading steadily these days: It has traded between 19.75 and 20.5 to the dollar for over two months. It has been returning to 20 to the dollar since late 2020.

The country was flirting with a recession before Covid-19 arrived but is now posting solid growth with low unemployment near the post-global financial crisis.

The biggest threat to Mexico is that it imports a recession from its northern neighbor, the United States.

Brazil’s central bank reacted early and aggressively to inflation. It is now one of the first to halt rate hikes. Unemployment has fallen to the lowest level since late 2015.

Economists raised their forecasts for growth this year to 2.7%, up from 0.5% projected in April.

Polls suggest that former President Luiz Inácio Lula da Silva remains the favorite to win Brazil’s runoff election on October 30, but the odds have narrowed.

Assets would likely react favorably to a victory by his rival, incumbent President Bolsonaro. However, ESG (environmental, social, and corporate governance) investors may find Brazil more favorable under a Lula government.

When Fitch downgraded Argentina to CCC- on Wednesday, October 26, it cited “deep macroeconomic imbalances and a highly constrained external liquidity position.”

Argentina is an extreme example, but other countries in the region are also suffering.

Colombia’s currency has plunged about 5% in the past month, the worst performance among emerging markets, as investors flee the country over concerns about leftist President Gustavo Petro’s agenda.

The central bank is expected to raise its policy rate again on Friday by 100 basis points and signal that there is more to come.

According to IMF estimates, Colombia’s current account deficit will be 5.1% this year, and Chile’s current account deficit will end in 2022 at 6.7% of GDP.

El Salvador’s will be 8.9%. However, Brazil’s will be 1.45%, and Mexico’s will be 1.2%.

With information from Bloomberg