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Mexico and Brazil expected to ensure soft landing for LatAm economy, says Moody's

Bnamericas

Although Latin America is heading into its second year of economic slowdown, with some potential turmoil on the horizon, Moody's Analytics expects the region to avoid a hard landing thanks to Mexico and Brazil.

That was the conclusion of Moody’s economist Alfredo Coutiño in a report in which he attributed the regional economic woes to the slowdown of the global economy and the weakening of domestic demand caused by the adjustment of economic policy.

Moody's estimates indicate that the region's economy will report growth of 1.6% this year, down from 3.7% in 2022.

“The two great engines that will make a soft landing possible are Brazil and Mexico with growth of at least 2%, followed by Uruguay and Colombia with between 1.5% and 2%. Chile will return to growth although much less than 1% and Argentina will see negative annual growth,” according to the report.

Moody's said "the Latin American economy surprised at the beginning of the year by reporting an almost general rebound in growth and above all driven by the two great locomotives, Brazil and Mexico, which represent 60% of production in the region."

Despite the fact that there was a moderation in external demand from the US market, the agency noted that the region benefited from the reopening of the Chinese economy during the first quarter.

"Thus, while the South American countries benefited from the Chinese market, Mexico and Central America advanced with the US market and with the impetus of the domestic market," Coutiño wrote.

The recovery of some supply chains at a global level together with the relocation of some production sources boosted primary exports in countries such as Brazil and Chile. Likewise, it stimulated the arrival of investments towards the manufacturing sector, such as the Mexican one, given the need to ensure supplies of inputs to the US market through the relocation of plants.

GRAY CLOUDS

Moody's said that the good economic start to the year will help to cushion the slowdown on growth in the region in 2023.

However, it warned that "recent signs of moderation in some economies globally, including the United States and China, make it possible to affirm that Latin America is indeed headed for its second year of economic slowdown."

The main risk, therefore, continues to be a setback in the global economy, which includes a possible recession both in the United States and in Europe and which together would drag down the Latin American economy, according to the agency.

“This could be complicated by an escalation of geopolitical conflicts that once again destabilizes global production and supply chains, or by a deeper resurgence of the banking crisis in the United States and that becomes a systemic risk for the global banking system,” the report states.

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