SAO PAULO--Economic growth in Latin America should be greater this year, led by Brazil, but measures taken to protect the region from crises are crimping growth, said Sebastian Briozzo, director of Latin America credit for Standard and Poor's Ratings Services.
The rating agency is expecting an expansion of 3.4% in 2013 for Latin America, compared with a projected growth of 2.6% in 2012. "In general terms Latin America is less vulnerable to economic crises, but the region is facing problems when it comes to economic dynamism," Mr. Briozzo said in a telephone interview.
A number of countries in Latin America have, over the last 10 to 15 years, resolved the uncontrolled public-sector spending that would regularly lead to balance of payments crises and hyper-inflation.
Tough spending controls were implemented to break out of those cycles, but are now becoming a victim of that success, and governments now need to invest more, the executive said.
The problem has been shielded somewhat in recent years because of the rise in commodities prices, "but more recently we've come to realize that public investment is as important as private investment," said Mr. Briozzo.
Average economic growth over the decade from 2002 to 2011 was 3.6% a year, according to S&P. For the region's two largest economies--Brazil and Mexico--the rating agency expects mixed results. Brazil should grow 3.2% this year, versus the meager 1% expected for 2012.
But Mexico may slow slightly, to around 3.5%, versus a projected expansion of 3.8% in 2012. Both countries face different challenges.
"The investment performance in Brazil is worrisome. The investment rate in Brazil is below 20%, well lower than its peers across the globe. Although public investment expanded in recent years, this pace is still too slow," said Mr. Briozzo.
Despite the central bank's move to cut interest rates to historical low levels, companies still face obstacles such as high costs, he said.
On the other hand, the executive said the recent acceleration of inflation isn't a worrisome sign. Twelve-month inflation advanced to 6.15% in January, its highest level in a year, well above the 4.5% target and close to the upper band limit of 6.5%.
"If you look to the last 12 years, inflation and growth is in line with the average. Of course Brazil must pay attention, but I still don't see inflation in Brazil as a point of concern," he said.
In the meantime, Mexico is expected to grow less this year than the previous year, although it will expand from a higher comparison basis than Brazil, and it also faces much lower inflationary pressure. Mexico's annual CPI rate is at 3.2%, very close to the central bank's 3% target.
Mr. Briozzo said he doesn't expect much news in terms of ratings actions on sovereigns this year, given the continued uncertainty in the global economy.
S&P rates seven countries in Latin America at investment grade, the highest number there has ever been: Chile, Brazil, Mexico, Colombia, Peru, Panama and Uruguay.
"This is a huge advance considering that until 2008, just Chile and Mexico, in the region, enjoyed an investment grade status," said Mr. Briozzo.
"The degree of uncertainty about global economy remains elevated, so the probability for changes in sovereign rate in the region this year is little," said Mr. Briozzo, declining to comment on whether he sees more downgrades or upgrades in the region this year.
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The rating agency is expecting an expansion of 3.4% in 2013 for Latin America, compared with a projected growth of 2.6% in 2012. "In general terms Latin America is less vulnerable to economic crises, but the region is facing problems when it comes to economic dynamism," Mr. Briozzo said in a telephone interview.
A number of countries in Latin America have, over the last 10 to 15 years, resolved the uncontrolled public-sector spending that would regularly lead to balance of payments crises and hyper-inflation.
Tough spending controls were implemented to break out of those cycles, but are now becoming a victim of that success, and governments now need to invest more, the executive said.
The problem has been shielded somewhat in recent years because of the rise in commodities prices, "but more recently we've come to realize that public investment is as important as private investment," said Mr. Briozzo.
Average economic growth over the decade from 2002 to 2011 was 3.6% a year, according to S&P. For the region's two largest economies--Brazil and Mexico--the rating agency expects mixed results. Brazil should grow 3.2% this year, versus the meager 1% expected for 2012.
But Mexico may slow slightly, to around 3.5%, versus a projected expansion of 3.8% in 2012. Both countries face different challenges.
"The investment performance in Brazil is worrisome. The investment rate in Brazil is below 20%, well lower than its peers across the globe. Although public investment expanded in recent years, this pace is still too slow," said Mr. Briozzo.
Despite the central bank's move to cut interest rates to historical low levels, companies still face obstacles such as high costs, he said.
On the other hand, the executive said the recent acceleration of inflation isn't a worrisome sign. Twelve-month inflation advanced to 6.15% in January, its highest level in a year, well above the 4.5% target and close to the upper band limit of 6.5%.
"If you look to the last 12 years, inflation and growth is in line with the average. Of course Brazil must pay attention, but I still don't see inflation in Brazil as a point of concern," he said.
In the meantime, Mexico is expected to grow less this year than the previous year, although it will expand from a higher comparison basis than Brazil, and it also faces much lower inflationary pressure. Mexico's annual CPI rate is at 3.2%, very close to the central bank's 3% target.
Mr. Briozzo said he doesn't expect much news in terms of ratings actions on sovereigns this year, given the continued uncertainty in the global economy.
S&P rates seven countries in Latin America at investment grade, the highest number there has ever been: Chile, Brazil, Mexico, Colombia, Peru, Panama and Uruguay.
"This is a huge advance considering that until 2008, just Chile and Mexico, in the region, enjoyed an investment grade status," said Mr. Briozzo.
"The degree of uncertainty about global economy remains elevated, so the probability for changes in sovereign rate in the region this year is little," said Mr. Briozzo, declining to comment on whether he sees more downgrades or upgrades in the region this year.
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