Half-way through this challenging year, the region’s top three economies are facing lowered growth projections. But 2019 also brought positive news.

The first half of 2019 was full of surprises for Latin America. Some unexpected events were positive, while others not so much. On the positive side, the United States made a monetary policy correction in order to keep international financial costs relatively low. On the negative side, Brazil, Mexico and Argentina—the three largest economies in Latin America—received lower growth projections than originally estimated for the year. These countries are quite different from each other, with unique strengths and weaknesses inspired by their own histories and “local flavors.” With this in mind, we will review the main factors, both good and bad, that had an impact on them as well as on the other countries in Latin America, and we will highlight the events that could affect the region in the second half of 2019.

Brazil, with by far the largest economy in Latin America, swore in a controversial new president, Jair Bolsonaro, in January. With prospects of change and a populist yet orthodox economic program, markets reacted positively to Bolsonaro’s new government. The most pressing issue on his agenda since day one has been overdue pension reform—a critical step in restoring fiscal discipline in Brazil. The path to an agreement has been rocky, however. Political negotiations have been slow and difficult because Bolsonaro’s party doesn’t have a parliamentary majority. Most experts estimate that a deal will be reached in the coming months, but it’s not clear which version of the reform will be signed into law and if the approved fiscal plan will yield the fiscal savings urgently needed by the government. Given political uncertainty, as well as an increasingly complicated global outlook, Brazil’s mid-year economic figures have been disappointing. Its gross domestic product is likely to grow only 0.7% this year, well below the potential growth of 2.0% and our initial projection of 2.3%.

In Mexico, President Andrés Manuel López Obrador—widely known as AMLO—took office in December 2018. Over these past months, the uncertainty generated by the new government and President Trump’s threats to impose trade tariffs on Mexican imports in retaliation for the flow of irregular migration across the border have caused a reduction in private investment, which has had an impact on the economy’s vitality. To make things worse, the structural problems of the emblematic national oil company PEMEX, the slowing economic growth of the United States and delayed negotiations regarding the new NAFTA have resulted in a sharp deceleration of economic projections—from 1.9% to just 1.0%, well below the calculated potential growth of 2.4%.

With presidential elections over in Brazil and Mexico, it will be Argentina’s turn in October. The conservative President Mauricio Macri is seeking re-election at a time when the country’s economy has not yet recovered from a deep economic and financial crisis. In the midst of a recession, and facing firm populist opposition, Macri will have to persuade the electorate that his conservative economic vision is still relevant despite failed attempts to return Argentina to the path of stability and growth. For the market, the result of the presidential election in October will be entirely binary, as results will either produce an orthodox rightwing approach or heterodox leftwing policies. Afflicted by political as well as economic uncertainty, Argentina is likely to contract 1.2% this year, half of last year’s contraction figure, but far from its potential growth of 2.5%.

In regard to other Latin American economies, Chile and Peru are projected to grow between 3% and 4%, largely due to their respective mineral industries. Colombia, with a tradition of good economic management, follows its western neighbors closely with a little less than 3% projected growth. Venezuela will continue its alarming collapse, the result of improvised and repressive policies favoring the few while producing a humanitarian crisis that has forced millions of refugees to flee to neighboring countries. Uruguay, on the other hand, will grow modestly in an electoral year. Finally, the sun will shine on the Central American and Caribbean beaches, with the region growing to near 3.5%. This growth is mostly credited to Panama and the Dominican Republic.

With some notable exceptions, the first half of 2019 has been a challenging period for the economies of Latin America. Brazil and Mexico began the year with new populist presidents, and despite their wide ideological differences, neither Bolsonaro nor AMLO have been able to implement reforms capable of boosting their respective economies. Argentina continues to suffer the ravages of a severe crisis from which it won’t recover before the fall elections, giving rise to uncertainty and anxiety among investors. With Brazil and Mexico growing modestly, and Argentina contracting, the smaller growing economies won’t be able to reverse regional averages. As such, Latin America is projected to grow only 0.9% this year, below the 1.3% reached in 2018, and well below its potential growth of 2.3%. Despite initial expectations, halfway through 2019, it’s clear Latin America is not on the fast train to prosperity. 

Read about our investment strategy based on the mid-year outlook Navigating a maturing cycle.