Dec 13 - Latin America's GDP is expected to pick up to 3.7% in 2013, from an
estimated 2.8% in 2012, underpinned by favorable domestic demand dynamics, sound
policies and continued macroeconomic stability, according to Fitch's 2013 Latin
America Sovereign Outlook report. Nonetheless, the sovereign credit cycle could
stall next year, with only two countries - Uruguay and Ecuador - currently
having Positive Outlooks.
'Although selective positive rating actions are possible, weak external
conditions, steady commodity prices and a lack of a significant reform drive
will likely dampen the upward momentum in Latin America's sovereign ratings that
was seen in recent years,' said Shelly Shetty, Head of Fitch's Latin America
Sovereign Group. 'Moreover, positive rating actions will increasingly depend on
improving institutional and structural factors as more sovereigns enter the
investment grade category.'
Currently, the Outlooks for Venezuela, El Salvador and Argentina's local
currency IDRs are Negative. Countries with highly speculative ratings will
likely be more vulnerable to a challenging external environment, as they have
less capacity to maneuver and generally exhibit weaker policy frameworks.
The regional growth forecast is heavily influenced by the expected rebound of
Brazil, although there are downside risks associated with its recovery. Bolivia,
Chile, Colombia, Panama, Peru, Suriname and Uruguay are expected to perform
better than the regional growth average of 3.7% in 2013, with Panama being the
fastest growing economy in the region. Economic growth in Brazil and Mexico is
forecasted to be close to the regional average. On the other hand, Argentina, El
Salvador, Jamaica and Venezuela are likely to underperform.
'Latin America should continue to exhibit external resilience, as most countries
benefit from low current account imbalances, steady foreign direct investment
flows and a substantial increase in international reserves,' added Shetty. The
region's stock of international reserves has increased from USD494 billion in
2008 to an estimated USD812 billion in 2012. Continued improvements in currency
composition and maturity profiles render government debt less vulnerable to
exchange rate shocks.
Fiscal reforms have proceeded in some countries to strengthen fiscal accounts
and address fiscal imbalances. However, Fitch foresees limited fiscal
consolidation in 2013, with the result that the region's government debt burden
will decline only slightly in 2013. While significant reforms to accelerate
productivity growth, improve competitiveness and achieve greater economic
diversification are currently not anticipated, Mexico's recent labor reform and
Brazil's announcement of an infrastructure plan are considered as positive
At present, the main downside risks to Latin American sovereign ratings are
external and include a potential U.S. fiscal cliff, an intensification of the
eurozone crisis and a faster-than-expected deceleration in China. Domestically,
political risks remain relevant in certain countries while fast-paced credit
growth needs to be monitored in some.
The election cycle in 2013 is relatively light with Presidential and legislative
elections in Chile and Ecuador. Argentina will also hold legislative elections
Fitch's special report '2013 Outlook: Latin America Sovereigns - Stalling
Sovereign Creditworthiness' is available at 'www.fitchratings.com'.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research: 2013 Latin America Sovereign Outlook