Economic climate worsens across all three main Latin American economies

Thu, 02/16/2017

The Ifo/FGV Latin American Economic Climate Index (ICE) fell from 70 points in October 2016 to 69 points in January 2017, maintaining a slight downward trend since July 2016. The index is developed by the German Ifo Institute in partnership with FGV’s Brazilian Institute of Economics (IBRE), using the Ifo World Economic Survey (WES) as a data source.

The result reflects the combination of a five-point increase in the Current Situation Index (ISA) and an 11-point decrease in the Expectations Index (IE). The ISA (36 points) is far from the historical average of the last 10 years (89 points) and remains in a range with mostly unfavorable assessments. The IE backed down 11 points (totaling 111), remaining in a favorable range above the historical average (98 points).

The ICE drop in Latin America was influenced by the worsened economic climate across the region’s three main economies: Brazil (-4 points); Mexico (-5 points); and Argentina (-8 points). The current situation assessment was worse in Argentina (-6 points), while improving in Mexico (+13 points) and Brazil (+4 points). However, the indicators of all three countries remained below the historical average, in an unfavorable range of the cycle. Expectations were less favorable in all countries: Argentina (-9 points); Brazil (-21 points); and Mexico (-24 points).

In Mexico, Trump’s election is part of the reason behind worsened short- and medium-term expectations. In Brazil and Argentina, expectations indicators remained above the historical average, which is not the case in the North American country. Lower expectations may reflect a very optimistic scenario reassessment following administration changes both in Argentina and in Brazil.

The World ICE maintained an upward trend, growing 5 points and reaching the favorable range of the economic cycle. The result is explained by an improved assessment of the current situation (6 points), while expectations remained stable. Developed countries showed improvements in the economic climate: increases in the U.S. (5 points), European Union (9 points), and Japan (17 points) were propelled by higher expectations and current situation indexes. 2017. In the world’s second-largest economy, China, the behavior was similar: a 25-point increase in the ISA, 5 points in the IE, and 16 points in the ICE. ICE results were less favorable in developing countries, with a significantly widespread downward adjustment of expectations.

The complete study is available on the website, in Portuguese.

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