Latin American Economics: Growth amid protectionist threats

Disclaimer & Disclosures: This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of ithttps://www.research.hsbc.comLatin American EconomicsQ2 2017Economics // Latin AmericaLatin AmericanEconomicsGrowth amid protectionist threatsThe recovery in LatAm is solidTrade frictions remain the biggest riskColombia and Mexico most vulnerable to US; Brazil, Chile, and Peru sensitive to Asian growthECONOMICSLATIN AMERICAQ2 2017By: John Welch and the Latin America Economics Research team  1 ECONOMICS ● LATIN AMERICA Q2 2017 This is a reissue of our note published on 3 April; this version explains the logic behind our 2018 GDP growth forecast for LatAm (3.2%). Please disregard the version previously distributed. GDP growth and inflation forecast comparisons between latest forecasts and January 2017 estimates ___________________ GDP Growth (%) ____________________ _________________ Inflation (%, end-year) _________________ Published in -- > January 2017 Latest January 2017 Latest January 2017 Latest January 2017 Latest __________ 2017f ___________ __________ 2018f ___________ __________ 2017f __________ _________ 2018f __________ Argentina 2.5 2.5 2.8 2.8 22.0 ▼21.0 15.4 ▲16.0 Brazil 0.8 0.8 3.6 3.6 4.3 ▼4.0 4.2 ▼4.0 Chile 2.0 ▼1.7 2.5 2.5 2.8 ▲2.9 2.9 2.9 Colombia 2.0 ▲2.3 3.2 3.2 4.4 ▼4.3 3.0 ▲3.9 Mexico 1.7 1.7 2.5 2.5 5.0 5.0 3.8 3.8 Peru 4.2 ▼3.0 3.6 ▲4.7 3.2 ▼2.8 3.0 ▲3.2 Uruguay 1.0 ▲1.5 0.5 ▲2.5 6.5 ▲7.0 6.4 ▲7.1 Venezuela -5.3 -5.3 5.8 ▼-1.1 2040.7 ▼791.6 66.6 ▲628.8 LatAm 1.1 ▲1.4 3.2 ▼3.1 140.5 ▼58.1 8.2 ▲32.2 LatAm ex Arg. & Ven. 1.4 ▼1.3 3.1 ▲3.2 4.6 ▼4.3 4.1 ▼3.9 Source: HSBC forecasts Monetary policy rate and exchange rate forecast comparisons between the latest forecasts and January 2017 estimates ____________ Monetary policy rate (%, end-year) _____________ ___________ Exchange rate versus USD (end-year) ___________ Published in -- > January 2017 Latest January 2017 Latest January 2017 Latest January 2017 Latest __________ 2017f ___________ __________ 2018f ___________ __________ 2017f __________ _________ 2018f __________ Argentina 17.75 ▲22.50 13.00 ▲18.00 18.00 ▼17.50 20.00 ▼19.50 Brazil 9.75 ▼8.50 8.50 ▼7.50 3.35 ▼3.10 3.35 ▼3.10 Chile 3.00 ▼2.50 3.00 3.00 680.00 ▼670.00 680.00 ▼670.00 Colombia 5.75 ▼5.50 5.75 ▲6.50 3075.00 ▼2800.00 3075.00 ▼2800.00 Mexico 6.75 ▲7.00 6.75 ▲7.00 21.00 ▼20.30 21.00 ▼20.70 Peru 4.50 ▼3.75 4.50 4.50 3.40 ▼3.20 3.40 ▼3.20 Uruguay 5.93 ▲6.42 5.83 ▲6.49 30.00 ▼28.25 30.00 ▼28.25 Venezuela 100.00 100.00 35.00 ▲100.00 35000.00 ▼2988.42 58500.00 ▼3282.50 Source: HSBC forecasts Forecast comparison  ECONOMICS ● LATIN AMERICA Q2 2017 2 Forecast comparison 1 Summary 3 Key forecasts – LatAm 4 Key forecasts – Global 5 Monetary & fiscal policy assumptions 6 Growing amid protectionist threats 7 Latin America at a glance 19 GDP 20 Inflation 21 Exchange rates 22 Monetary policy rates 23 Industrial production and unemployment 24 Consumption and investment 25 Trade balance and current account 26 FDI and international reserves 27 External debt and remittances 28 Primary balance and fiscal balance 29 Commodities at a glance 31 Country profiles 35 Argentina 36 Brazil 39 Chile 42 Colombia 45 Mexico 48 Peru 51 Uruguay 54 Venezuela 57 Disclosure appendix 63 Disclaimer 64 Contents We acknowledge Debalika Sarkar, Bangalore Associate, for her valuable contribution and effort in producing this publication. Debalika Sarkar is employed by a non-US affiliate of HSBC Securities (USA) Inc. and is not registered/qualified pursuant to FINRA regulations.  3 ECONOMICS ● LATIN AMERICA Q2 2017 Growing amid protectionist threats Growth returns despite global trade threats In line with a synchronized recovery in the G7 countries, LatAm is showing clear signs of a return to growth. The signs of recovery that began to show at the beginning of the year have strengthened. We have revised up our 2017 forecast for 2017 LatAm growth ex-Venezuela to 1.5% from 1.1% in our previous 1Q 2017 LEQ and significantly up from 2016’s drop of 0.8%. We either revised up real GDP growth or kept our previous forecast for 2017 in Brazil, Mexico, Colombia, and Argentina. Real GDP in LatAm ex-Venezuela should gain momentum in 2018 and would grow 3.2%2, broadly unchanged from our previous forecast. Consequently, we maintain an upbeat view for the region despite looming risks, especially on the trade front. The inflation front looks better as well, especially in Brazil where inflation should fall from over 10% in 2015 to 4.0% in 2017. Chile, Colombia, and Peru have successfully reversed the higher inflation rates of 2014-15. All of the respective central banks are easing monetary policy despite US Fed raising rates, as their policy rates reached relatively high levels, especially in Brazil. Argentina is showing progress and may start to ease as well as real interest rates are among