Fitch Ratings’ 2023 sector outlooks across Latin America remain ‘Neutral’ or ‘Deteriorating’, with few exceptions or changes from the beginning of the year. Overall, 54.3% of Latin American sector outlooks are ‘neutral’ at mid-year 2023, 45.7% are ‘deteriorating’ and none are ‘improving’. Only two Latin American sector outlooks changed since Fitch established its 2023 Outlook in December 2022. Fitch revised its sector outlooks for Guatemalan insurance to ‘neutral’ from ‘improving’ and Peruvian banks to ‘neutral’ from ‘deteriorating’.
Economic growth in Latin America is decelerating, but has been resilient – generally exceeding the ratings firm’s expectations so far this year, despite global demand pressures and weaker commodity prices. Risks continue to persist, including slowing GDP; high, albeit decelerating, inflation rates; tight external funding conditions; and political/regulatory uncertainty.
Commodity prices will be the main transmission channel of China’s rebound for Latin American economies. While some metal prices, such as copper and iron ore, have risen in recent months on China’s reopening, gains may be limited given that China’s recovery will likely be focused more on consumption (and services) rather than fixed investment and infrastructure stimulus, implying less of an upside for metal prices. Fitch recently reduced its short-term prices for copper, aluminium, zinc and thermal coal in a revision of its global metals and mining assumptions.
Political risk remains elevated in many Latin American countries and already have taken an economic toll in Peru, Ecuador and Bolivia. Successive shocks are pressuring the political landscape, including the pandemic and the related rise in poverty and income inequality in 2020, the uneven recovery in 2021, high inflation in 2022 and the return to a weak growth path in 2023. These factors increase the potential for social mobilizations that can pressure public finances and debt trajectory, and lead to weaker growth and investment.