As the United States returns to normal growth rates, the Federal Reserve is likely to return to normal interest rates which will mean the end of access to easy financing for Latin America.
Slow growth will be Latin America's "new normal" in 2015. The IMF expects growth this year to reach just 2.2 percent--up from 1.3 percent, but still less than ideal. The deceleration comes amid a decline in the commodity cycle, with the price of traditional Latin American exports such as soy, copper, and especially oil, experiencing large declines amid reduced global demand, especially from China. This reduced demand will spell slower growth in all the region's economies--and even recession in those countries without strong macroeconomic fundamentals such as Argentina and Venezuela. Additionally, as the United States returns to normal growth rates, the Federal Reserve is likely to return to normal interest rates--which will mean the end of access to easy financing for Latin America.
This slowdown will have consequences for the region's economies, with reverberations in politics and the business cycle as well. Below, Latin Trade lays out its top 10 things to watch for in 2015.
MEXICO: A RISING STAR COULD FALTER. The reforms undertaken by the administration of Enrique Pena Nieto since taking office in 2012 have been nothing short of phenomenal, with reforms in the energy, telecommunications, banking, and education sectors, among others. These reforms have generated enough investor excitement to have many dub this the "Mexican Moment," and should continue to deliver results in 2015. Additionally, the Mexican economy should continue to grow --especially in sectors such as manufacturing exports--as the U.S. economy continues its recovery.
However, the decline in the global oil price--which has fallen by more than half since the middle of 2014--has the potential to dampen enthusiasm for the country's oil reform, making riskier or higher cost projects such as shale gas exploration less attractive for private investment. More concerning, however, will be how the country handles its security issue. While the news focus of the past two years has been on the reforms, the Ayotzinapa incident was a reminder that the violence of the Calderon years (2006-12) has not disappeared. How the government tackles this issue--and a Mexican electorate increasingly fed up with insecurity--will be key in determining the country's future success.
BRAZIL: A MOVE IN THE RIGHT...