Moody's: Negative 2020 outlook for LatAm and the Caribbean amid discontent and low growth

By Moody's

New York - Moody's Investors Service outlook for Latin American and Caribbean sovereign creditworthiness in 2020 is negative, reflecting expectations for the fundamental credit conditions that will drive sovereign credit over the next 12-18 months. Modest economic growth and rising social tensions will complicate policy formation and fiscal consolidation efforts in the region.

"In 2020, most Latin America economies will expand at higher rates than in 2019, with annual real GDP growth in the 2.5%-3.5% range," says Moody's Assistant Vice President Renzo Merino. "However, rising domestic political risk and mounting external headwinds represent material downside risks to the growth outlook. Furthermore, trend growth will remain below the levels seen over the past two decades for the foreseeable future and moderating growth will complicate fiscal management for most of the region's sovereigns."

Most Latin American governments will reduce fiscal deficits, or maintain them at levels similar to 2019. However, as few sovereigns will report primary balances large enough to stabilize debt ratios in 2020, Moody's does not expect governments will rebuild the fiscal space they lost in recent years. Consequently, a majority of Latin American sovereigns will have a limited ability to implement countercyclical policies in response to potential shocks.

Improved debt structures and extended maturity profiles will help mitigate credit risks associated with higher government debt levels. Furthermore, favorable financing conditions in 2020 will help contain borrowing costs in a number of countries.

The rise of social discontent across Latin America weighed on investment prospects, contributing to downward revisions to growth last year. Moody's expects this condition to remain a key issue in 2020 and beyond, as relatively low growth is unlikely to materially improve employment dynamics or narrow income inequality. Overall, social discontent will constrain policymakers' ability to enact measures that bring about substantial fiscal consolidation.

Subscribers can access the report at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1197603