After entering recession during 2016, Latin America faces a new year with the possibility of being the emerging market with the greatest rebound in activity, although the magnitude of this recovery may again be disappointing as it remains well below its potential. Several reasons explain this disillusionment. Perhaps the most striking and widely discussed is the uncertainty surrounding the shift in US policy regarding its trade relations with Mexico and the region. However, this is not the only factor threatening investor appetite for these countries. Rising interest rates in the US, the consequent outflow of capital, the financial volatility produced by these decisions, and the upcoming elections in Argentina, Chile, and Ecuador this year, and in Colombia, Mexico, and Brazil in 2018, are risk elements for a region determined to always advance behind events.
The fact is that for one reason or another, even though Latin America is set to record growth of over 1.6% this year (well above the -0.7% experienced in 2016), investor confidence will continue to weaken, which will likely translate into a reduction in private capital flows compared to 2016 levels. In Mexico, with more than 80% of exports directed to the US and remittances in question due to the immigration policy announced by President Trump, the country becomes vulnerable and, consequently, interest in foreign direct investment will fade significantly in 2017. By contrast, the US only represents 13% of Brazilian exports, but fiscal weakness in the country and the financial volatility of its markets will prompt rigorous analysis from investors despite the announcement of several infrastructure projects and oil and gas concessions for this year. Finally, although Argentina has had access to capital markets to anticipate the financial needs planned for this year, the heavy debt service and fiscal imbalance could call into question the enthusiasm of foreign investors in the country.
