In January 2014 survey the economic climate index (ECI) of the IFO/FGV improves in Latin America to 95 points from 88 points in July 2013.
The global ECI continued its path of ascension started in October 2012, and reached 114 points in Jan´14, remaining 8 points above the average of the last ten years.
In January 2014 survey the economic climate index (ECI) of the IFO/FGV improves in Latin America to 95 points from 88 points in July 2013.
The global ECI continued its path of ascension started in October 2012, and reached 114 points in Jan´14, remaining 8 points above the average of the last ten years.
In January 2014 survey the economic climate index (ECI) of the IFO/FGV improves in Latin America to 95 points from 88 points in July 2013.
The global ECI continued its path of ascension started in October 2012, and reached 114 points in Jan´14, remaining 8 points above the average of the last ten years.
The economic climate index improves in Latin America,
but worsens in Brazil
The 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) advanced, after having been stable in the last two surveys (July and October 2013). The 8% increase in the ECI (to 95 from 88 points) is explained by both the improvement in assessments of present conditions (PSI) and expectations (EI), but only the latter one went to the zone of favorable assessment 1 . Furthermore, all three indicators are below the average of the last 10 years and, in addition, the region still has to improve its performance to ensure a stable growth trajectory. However, the result does not generalize to all countries in the region.
Among the 11 countries (Chart 2) covered by the Survey, 8 recorded an ECI in zone of favorable assessment (Bolivia, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru and Uruguay). Highlight on the performance of the following countries: Colombia, where the ECI has increased by 22% between the surveys of October 2013 and January 2014 (positive expectations for the performance of the sector of oil and entry of foreign investment); Mexico, which returned to the zone of favorable economic climate, after the drop of the ECI last October (improvement in the U.S. economy has a direct impact on the country). Chile was the only country among the eight that repeated the result of October (caution/waiting for the announcement of the measures of the new government that took office in January 2014). So, what does explain that ECI in Latin America continues unfavorable? Remember that indicators are weighted by the share of trade chain (exports plus imports) of each country in the region. After Mexico, with 35% share, followed by Brazil (22%) and Argentina, Venezuela and Chile, all with a share of 7%. However, Brazil, Venezuela and Mexico, which explain 36% of the trade chain are all in the unfavorable zone. Therefore, even with the improvement of the indicators of other countries, the weight of these three causes that the ECI in the region still remains unfavorable.
1 From the January 2014 edition, the Economic Climate Index in Latin America will be presented so that numbers below 100 are classified as unfavorable and above 100 as favorable. See methodological note at the end of this report, as well as tables with all indicators. 95 114 40 60 80 100 120 140 J a n - 0 3 J u l - 0 3 J a n - 0 4 J u l - 0 4 J a n - 0 5 J u l - 0 5 J a n - 0 6 J u l - 0 6 J a n - 0 7 J u l - 0 7 J a n - 0 8 J u l - 0 8 J a n - 0 9 J u l - 0 9 J a n - 1 0 J u l - 1 0 J a n - 1 1 J u l - 1 1 J a n - 1 2 J u l - 1 2 J a n - 1 3 J u l - 1 3 J a n - 1 4 Chart 1: Economic Climate Index for world and Latin America Indice de Clima Econmico Amrica Latina Indice de Clima Econmico Mundo February 13 th 2014 Ifo/FGV Economic Climate Index for Latin America 88 95 80 96 102 October/2013
January/2014 Expectations 88 Present Situation
II
Venezuela and Argentina show the worst ECI in the region - 20 points and 77 points respectively - and kept the same results of the survey in October for all indicators. Brazil, which had improved the economic climate in the comparison between July and October, although still in negative zone, has worsened again and fell by 6.3% in the index which went to 89 points from 95 points. It is observed that PSI and EI in Brazil also dropped - 6% and 11% respectively - and all indicators are below the historical average of the last ten years. With the results described above, Brazil, Argentina and Venezuela occupy the last positions in the ranking of Latin America (see table at the end of this report). A note should be added regarding the crisis in Argentina and its potential impacts within Mercosur. In Brazil, Argentina's crisis can affect the auto industry, but Brazil's total exports to that country does not reach 1% of GDP. Draws attention to the results of the survey the case of Uruguay, which improved the ECI, as well as Paraguay. Here we recall that 6% of Uruguay's exports and 14% of Paraguay's are intended for the Argentine market (year 2012). So "contagion" from Argentina via trade can be offset by other markets, which helps explain why the ECI of these countries seems not to have been affected by the Argentine crisis.
Worldwide the favorable results in the United States and the European Union consolidate the uptrend of the indicator.
The global ECI continued its path of ascension started in October 2012 and reached 114 points in January, remaining 8 points above the average of the last ten years. This improvement is linked to the performance of the United States (19.4% increase in ECI) and the European Union (4.4%). Among the largest economies of the developed countries, Japan recorded a drop in ECI, but remained in positive zone. Emerging countries in the 2000s, especially after the crisis of 2008, led the growth of the world economy. Now with the recovery of the United States and the European Union and the results in emerging markets, many experts suggest that the situation is reversed. Moreover, rising interest rates in the United States, reduced liquidity in the international market and China growing at lower rates, create an unfavorable scenario for emerging markets. The survey in January (Chart 3) confirms the earlier view for Brazil and China, although this last one records a drop in ECI, but remains in the favorable zone. This indicates that domestic factors, besides the international scenario, should be considered in the analysis of the BRICS. Anyway, the indicators tend to be lower for BRICs compared to some developed countries.
72 107 75 88 122 100 106 145 111 105 20 77 108 95 104 113 100 89 128 119 95 20 77 124 89 104 138 107 103 140 132 100 20 0 20 40 60 80 100 120 140 160 Argentina Bolvia Brasil Chile Colmbia Equador Mxico Paraguai Peru Uruguai Venezuela Chart 2: Economic Climate Index for Latin America countries jul/13 out/13 jan/14
III
Special Survey on the change in U.S. monetary policy
Finally it is worth noting that the Ifo Institute conducted a special survey regarding the change in the monetary policy of the United States. The question was: what is the expected impact on economic growth, interest rates, exchange and foreign investment of a less expansionary monetary policy in the United States? In general, the expected impacts are small and the region most affected is expected to be Latin America. The appreciation of the currencies in the region and the entry of foreign capital in the years 2010/2011 and part of 2012 associated with low interests in U.S. would explain this result. Brazil can be highlighted as one of the countries where the change in direction of U.S. policy causes concern.
RANKING OF COUNTRIES
Previous Position Present Position Country Average ECI of the last 4 quarters oct-13 jan-14 1 1 Paraguay 144 144 2 2 Peru 126 124 4 3 Colombia 112 120 5 4 Bolivia 108 112 8 5 Ecuador 100 107 3 6 Chile 113 106 6 7 Mexico 106 103 7 8 Uruguay 105 99 9 9 Brazil 100 93 10 10 Argentina 80 73 11 11 Venezuela 25 22
101 112 118 128 78 117 88 98 82 77 75 113 103 128 139 103 128 112 90 77 76 95 118 123 106 147 84 132 107 112 84 78 89 0 20 40 60 80 100 120 140 160 Unio Europia Estados Unidos Japo Alemanha Frana Reino Unido China ndia Rssia frica do Sul Brasil Chart 3: Economic Climate Index for selected countries/regions jul/13 out/13 jan/14
M e t h o d o l o g i c a l N o t e The Latin America Economic Survey aims for monitoring and forecasting of economic trends, based on quarterly information supplied by economy experts in their respective countries. The survey is - simultaneously - applied with the same methodology in all countries of the region, a method that allows the construction of an agile and comprehensive picture of the economic situation in countries and economic blocks. In January 2014, were consulted 141 experts in 18 countries. The survey generates information of both qualitative and quantitative nature. The Economic Climate Index (ECI), is the synthesis indicator, comprised of two items of qualitative nature, the Present Situation Index (PSI) and the Expectations Index (EI), which deal, respectively, with the general economic situation in the country at the moment and for the upcoming six months. In the World Economic Survey, by the Ifo Institute, the individual responses are combined for each country without any weighting. To reach the average value of each index, 9 points are assigned to positive responses (+), 5 to indifferent responses (=) and 1 to negative responses (-). The Economic Climate Indices represent an arithmetic average of the two indices that comprise it (PSI and EI). The process of aggregating data for a particular group of countries or continent is made according to the relative share of foreign trade (exports + imports) in each country regarding the total in the region. According to specific criteria of the survey, the phase of the business cycle the country is at the moment is determined by a combination of PSI and EI. When the two indices exceed the average limit of 5 points, the economy is in the "boom" phase. When both are below 5 points, there is recession. The phase of decrease occurs when the PSI is higher and EI is lower than 5 points. And the recovery phase with a higher EI and the PSI lower than 5 points. From the January 2014 edition on, the indicators of this report began to be presented in another scale, obtained by converting the values of 5 points in the original scale of the Ifo Institute to level 100 (one hundred). The new scale ranges from a minimum of 20 points to a maximum of 180 points. Indicators greater than 100 are in the favorable zone and below 100 in the unfavorable one.