Although the business climate in Latin America had a slight improvement in the last three months, it is still in a “very unfavorable” situation, according to a study by the Brazilian center for economic studies Fundación Getulio Vargas (FGV).
The so-called Economic Climate Indicator (ICE) in Latin America, measured every three months by the FGV, presented a new improvement, which led to its fourth consecutive rise, despite the strong impacts of the new coronavirus pandemic in the region.
The index increased from 70.5 points in the first quarter to 81.2 points in the second (the data is released in the second month of the period), which represents a rise of 10.7 points but keeps it at the “unfavorable zone of the economic cycle”.
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The institution indicated that, although expectations regarding the coming months “are optimistic,” the perception of the current situation “is still very unfavorable.”
He stressed that the covid-19 pandemic is still “a problem in all countries”, but the improvement in world demand and the increase in the prices of raw materials had a “positive influence on the revision of economic growth for 2021 in the most of the countries in the region ”.
The ICE is obtained based on two indicators: the Current Situation (ISA) and the Expectations (IE), which measures the projection of the economists of various countries for the next six months. In all three indicators, the climate is considered “favorable” when it is above 100 points.
In this framework, the ISA for the region rose 8.8 points (or a variation of 45.4%) with respect to the three previous months to 28.2 points, an “extremely low level if one considers that the limit of step between the unfavorable and favorable zones is 100 points ”.
For its part, the IE went from 143.6 points to 156 points, which keeps the indicator in the favorable zone.
Among the countries analyzed by the study, Colombia was the one that registered the highest positive variation, of 22.5 points, in the ICE, driven by the improvement in the evaluation of the current situation, which did not reflect, however, the violent protests that have paralyzed the country in recent weeks.
In addition to Colombia, Bolivia and Mexico presented positive variations in the three indicators, while Peru obtained the second largest increase in the general indicator, despite the slight drop in expectations for the next six months.
Already Brazil and Ecuador improved the perception of the business climate boosted exclusively by the increase in the expectations indicator.
In Chile, the ICE index remained “relatively stable” (-1.4 points), while Argentina, Uruguay and Paraguay registered drops of over 10 points.
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The FGV highlighted that “all the Latin American countries analyzed are in the unfavorable economic climate zone”, with the exception of Paraguay, which is on the “border” of 100 points.
“All the countries register unfavorable indicators in the evaluation of the current situation and all show favorable expectations in relation to the coming months, except Argentina,” the study noted.
The analysts consulted indicated that the growth forecast for the gross domestic product (GDP) for Latin America in 2021 will be 4.3%, with the greatest advances for Peru (7.9%), Chile (6.1%) and Argentina ( 5.8%).
However, the experts considered that a possible worsening of the coronavirus pandemic in the region, the lack of confidence in economic and innovation policy are the main challenges to achieve a better business environment in Latin America.
