BRASILIA, March 11 (Reuters) - Economists at Bank of America Merrill Lynch have substantially lowered their 2020 economic growth forecast for Latin America, citing the hit to activity from the global coronavirus outbreak and the region’s exposure to lower oil prices.
They now expect growth of just 0.7%, compared with 1.2% as recently as two weeks ago, and in the worst-case scenario, growth will slow to just 0.2% this year.
The region’s biggest economy Brazil is now expected to grow 1.5% compared with the previous projection of 1.9%, BAML said, and the second biggest, Mexico, is seen contracting 0.1% instead of expanding 0.5%.
“LatAm is very exposed to China and commodity prices,” BAML economists wrote in a note dated March 10, noting the recent collapse in oil after Russia and Saudi Arabia triggered a price war.
“On the back of the (coronavirus) outbreak and oil war, we now expect LatAm to grow 0.7% in 2020, down from 1.2%. Chile, Peru and Brazil are the most sensitive countries to the combined China and commodity shock,” they said.
Colombia’s growth outlook this year was revised down to 2.7% from 3.1%, Peru’s lowered to 2.0% from 2.7%, and Chile’s trimmed to 0.8% from 0.9%.
BAML now expects Chile’s central bank to cut interest rates by 50 basis points to 1.25% this year instead of staying on hold, and Mexico’s central bank to reduce rates by 75 basis points instead of 50 basis points.
Colombia’s central bank will refrain from cutting rates due to the country’s already wide current account deficit and risk of the weaker currency fueling inflation, BAML said. (Reporting by Jamie McGeever Editing by Diane Craft)