We recently caught up with Gustavo Stenzel, director of Latin America strategy, to discuss his outlook for Brazil and Mexico (which have general elections this year) and also Argentina's potential return to emerging-market status. He explains why he thinks these economies could benefit from an improving economic backdrop and government reforms.
As we near the second half of 2018, we are generally optimistic about the growth prospects for Latin American economies. The most recent economic statistics appear supportive. Gross domestic product (GDP) growth in Latin America is predicted to rise to 2.0% in 2018, up from 1.3% in 2017.1 Despite recent volatility and negative sentiment arising from increased rhetoric regarding trade protectionism, growth in the region continues to be supported by a favorable macroeconomic environment, higher commodity prices, continued strength in global growth, low inflation and accommodative monetary policies.
二零一八年下半年将近，我们普遍看好拉丁美洲经济体的增长前景。最新的经济统计数据显然印证了这观点。预期二零一八年拉丁美洲国内生产总值 (GDP) 将从二零一七年的 1.3% 提高到 2.0%。1尽管有关贸易保护主义的激烈讨论引起了最近的波动和负面情绪，但是利好的宏观经济环境、较高的商品价格、全球增长持续上扬、低通胀和宽松的货币政策为该地区经济的持续增长注入了强心剂。
In particular, we think Latin America's two largest economies, Brazil and Mexico, could continue to benefit from economic growth and reforms in areas such as labor, fiscal consolidation and private investments. However, we believe further reforms are needed, and upcoming elections in those countries could influence our outlook.
Brazil's New Beginnings
Our long-term outlook for Brazil is positive, bolstered by strength in the agriculture sector, increased consumer spending2 and some successful economic reforms.
Likewise, Brazil's GDP growth is rebounding—it's a much-needed marker after the 2015-2017 Brazilian economic crisis. The economic recovery that began last year seems to be strengthening, as fourth-quarter 2017 GDP growth was fairly broad-based across all sectors of the economy.
同样，巴西的 GDP 增长回弹——这是二零一五年至二零一七年巴西经济危机后亟待出现的一个增长标志。自去年开始的经济复苏力度似乎正在继续加强，因为二零一七年第四季度 GDP 的增长广泛出现在该经济体的所有板块。
Impact of Political Uncertainty in Brazil
Brazilian President Michel Temer's administration has already implemented some much-needed reforms, and some remaining proposals could still be partially met this year before the October 2018 general elections. These include auctioning offshore blocks full of oil deposits to major players in the oil sector.
The Brazilian labor market received a boost after new laws, which came into effect last year appeared to benefit both companies and job seekers. Under the new laws, companies are allowed to hire workers with flexible schedules, saving companies money and reducing unemployment. Despite the success of these reforms, the government's plans to push through a pivotal overhaul of Brazil's costly pension system failed.
With the Brazilian general election set to take place in October, we think it's unlikely we'll see any action taken on pension reforms until 2019, regardless of the election outcome. But we are generally positive on the possibilities Brazil offers, due to the government's continued emphasis on reforms.
We recognize uncertainty will likely continue to weigh on Brazil's often-unpredictable political landscape, as candidates from outside the political establishment could emerge. Any election-related uncertainty could weigh on investors' minds.
Still, we think that uncertainty in Brazil can create buying opportunities in Brazil and other economies in Latin America, as some companies have ended up stronger from the recession period due to the actions undertaken during that difficult period. Cost reductions by companies will likely bring permanent changes within these organizations and give them better financial leverage in the long run.
Reform Uncertainty Can Offer Opportunity
At the same time, we think consumer stocks could receive a boost after Brazil's central bank cut its benchmark Selic interest rate to a record low of 6.5% in March and signaled that it is likely to lower interest rates further. Commercial banks and segments of the consumer retail market could be especially attractive given that low inflation and resumption of consumer credit growth will likely help activity in these areas.
In addition, we see strong pent-up demand for investments in infrastructure, such as transportation and financial infrastructure platforms, to tackle many bottlenecks for growth.
As we see growth return, aided by reform tailwinds, we remain optimistic about the future. Nonetheless, we are mindful of the potential volatility ahead and will watch developments in Brazil closely, particularly the upcoming election.
Mexico Regains Footing
Brazil isn't the only economy where reforms are starting to bear fruit. Mexico, the second-largest economy in Latin America after Brazil, has seen the government break up monopolies, open up the utility and energy sectors, and push ahead with education and labor reforms. We believe the implementation of the structural reform agenda will likely support growth going forward.
Mexico has been gradually positioning itself as an inexpensive manufacturing hub that's linked to North America's supply chain. On the domestic front, Mexico still has an underpenetrated banking system even compared to other emerging-market economies.
The country generally offers cheaper manufacturing labor than China and an increasing number of specialized workers. Mexico's history in the manufacturing sector, along with these cost advantages, means the country has been able to regain its position as a global manufacturing hub.
With a general election in Mexico scheduled for July 2018, it'll be a busy political year for the region. Whoever wins the Mexican presidency will have to lead renegotiation discussions with its North American Free Trade Agreement (NAFTA) partners: The United States and Canada.
墨西哥大选计划于二零一八年七月举行，这将是该地区政事繁忙的一年。无论谁当选墨西哥总统，都必须与其在北美自由贸易协定 (NAFTA) 中的合作伙伴———美国和加拿大重新谈判。
Mexico's temporary exemption from US tariffs on steel and aluminum imports will likely depend on satisfactory NAFTA negotiations. Nonetheless, we view the country's macroeconomic outlook as stable with fiscal discipline and focus on an open economy.
墨西哥暂免美国钢铁和铝进口关税可能将取决于 NAFTA 谈判能否取得满意结果。无论如何，我们认为凭借财政整治措施和对开放经济的重视，该国宏观经济前景稳定。
If Mexico is able to close an agreement on NAFTA, it would be seen as a positive. With short-term market jitters aside, over the medium to long term we do not expect Mexico to deviate from market-oriented policies that are now taking hold across Latin America.
如果墨西哥在 NAFTA 上能够达成协议，这将是一个积极的利好因素。短期市场有所动荡，但是，就中长期而言，我们预期墨西哥不会偏离整个拉丁美洲现在正在执行的以市场为导向的政策。
Argentina on the Path to Recovery
We believe recent volatility regarding the Argentine peso is part of the country's path to adopting a market-friendly approach.
Many important measures have already been implemented, such as opening up markets for capital flows, readjusting tariffs that were artificially low and restoring a credible monetary policy. Still, macro challenges persist amid a backdrop of a high current account deficit and stubbornly high inflation. Strong measures were taken to readjust expectations with a 675 basis point (6.75%) interest-rate hike to 40%.3
许多重要措施已在执行，比如开放市场让资本流动、重新调整人为压低的关税、以及重新实行可信的货币政策。但是，在经常账目赤字大和通胀居高不下的背景下，宏观挑战仍然存在。为了调整预期，该国实行了强有力的措施，利率提高 675 个基点 (6.75%) 到 40%。3
Despite this, our long-term view is optimistic. After years of populist measures, we think Argentina offers potential for growth on the back of multi-year GDP annualized growth, improving unemployment rates, strengthening private consumption growth and robust industrial output. Bank loan penetration is extremely low,4 which will allow for strong banking growth and consolidation. Other opportunities also arise given the low base of penetration of other goods and services, such as autos or civil construction, as well as continuation of a full adoption of market prices in regulated sectors.
尽管如此，我们对它的长期前景持乐观态度。历经多年平民主义措施，我们认为，凭借多年 GDP 年化增长、失业率改善、个人消费增长率提高和强劲的工业产出，阿根廷具备增长的潜力。银行贷款饱和度极低，4这将为银行业的增长和整合带来强劲潜力。鉴于诸如汽车或民用建筑产业等其他商品和服务产业的低饱和度，以及受管制的产业继续全面采用市场价格体系，其他机会也将出现。
Argentina's efforts at opening up its economy, which could attract investments across multiple sectors, might be recognized by MSCI and put the country in line for a potential upgrade to emerging-market status.
阿根廷在开放其经济上所做的努力将为多个产业吸引投资，这更有可能赢得 MSCI 垂青，让该国有机会晋升到新兴市场地位。
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1. International Monetary Fund, World Economic Outlook, April 2018. There is no assurance that any projection, estimate or forecast will be realized.
2. World Bank National Accounts data, and OECD National Accounts data files, May 2018.
2.世界银行国民经济核算数据，和 OECD 国民经济核算数据文件，二零一八年五月。
4. Source: Bank of International Settlements (BIS), as of September 30, 2017.