Economic Climate Index for Latin America remains stable

latamThe Ifo/FGV Economic Climate Index for Latin America (ECI) – developed in partnership between the German Ifo Institute and the FGV taking as a data source the Ifo World Economic Survey (WES) – repeated in October the result of the last survey in July (4.4 points). The stability was determined by the combination of worsening in the Ifo/FGV Present Situation Index (PSI) (to 4.0 from 4.5 points) and improvement of the Ifo/FGV Expectations Index (EI) (to 4,8 from 4.3 points). Despite the improvement in expectations, both indicators were below the historical average of the last ten years, remaining in the zone of unfavorable assessing.

Between July and October, the global increased to 5.5 from 5.2 points, remaining above the average of the last ten years. The increase was led by the EI, which besides having risen to 6.4 from 6.0 points between July and October, remained in the favorable zone. The PSI of the world, however, remained in the unfavorable zone, going to 4.5 from 4.4. In the regions/countries where the ICE has improved, like the European Union and Asia, the behavior was similar. The improvement in expectations led the rise of ECI, while the PSI increased slightly but is still in the zone of unfavorable assessment.

In the United States, the problems associated to the issue of the debt ceiling led to a worsening of all indicators, although the economic climate continues favorable. Among the BRICS, India, Russia and South Africa also dropped in ECI and remain in the zone of unfavorable asessment. In this group of emerging countries, only China and Brazil recorded a rise in ECI. The ECI of China increased by 27.3% and the country entered the favorable zone. The ECI in Brazil increased with a close percentage (26.3%), but the country still remains in the zone of negative assessment.

The projected average growth in world GDP over the next 3 to 5 years, published by the Ifo World Economic Survey (WES), showed a small increase over the same period last year, to 2.6% from 2.5%. GDPs in Asia and the European Union have been revised favorably, reflecting the improvement in ECI. The first one decreased to 3.7% from 3.5% and the second to 1.6% from 1.2%. In the United States, there was a decrease in the projection, although small (to 2.2% from 2.3%). For Latin America the estimate increased to 3.2% from 3.6%.


The three indicators (ECI, PSI and EI) are in the favorable zone for Bolivia, Colombia, Peru and Paraguay. In Colombia, there was a worsening in the economic climate, driven by expectations. In Paraguay, there was a decrease of the PSI and EI. In Colombia, protests in September against the economic policies may have influenced the results. In Paraguay, despite the decline, the ECI is still the highest in the region. Differences regarding the imposition of a tax on exports of agricultural products can be one of the factors explained the drop of the indicator. In Bolivia the indicator remained stable and in Peru it has improved.

Besides these countries, only Chile and Ecuador showed favorable ECI in October 2013. In Brazil, despite the unfavorable ECI, the three indicators improved and expectations are in the favorable zone, signaling a phase of economic recovery. It is noticed that the improvement signals the interruption in the worsening trend of economic climate started in January of this year. Nevertheless, the result of the ECI in October is still lower than the values recorded during the year of 2012. Thus, it explains why the projected GDP for the next 3 to 5 years was revised downward compared between October 2012 and 2013 to 2.6% from 3.7%. The economic climate in Brazil improved in October, but the result does not suggest the return of optimism that prevailed in early 2013, when the expectations index reached 7.2 points. Argentina and Venezuela remain with the worst indicators in the region and are placed last in the ranking of average ECI in four months.

Finally, the Survey of Latin America in October brings the list of the major problems that experts point to as inhibitors of current economic growth in countries. Lack of international competitiveness followed by lack of confidence in government policies as well as shortage of skilled manpower are the main issues in the Latin American region. In April Survey, lack of confidence in government policies was in third place and the shortage of manpower in second. Not a good sign, since investments depend on confidence in government policies.

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