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The global economy is headed for yet
another year of robust growth. However, the development of the U.S. economy
during the next months will be pivotal, as forecasts oscillate from negative
to positive reflecting the latest data releases. Revised data for the first
quarter showed the U.S. economy growing at the slowest pace in four years.
Moreover, news about surging new home sales were contrasted by reports about
declining existing home sales, dimming prospects for a quick recovery in the
housing market and fuelling concerns that the U.S. economy may be heading
for a steeper slowdown than anticipated earlier. On a positive note, the
ongoing decline in consumer confidence has come to a halt, but at the
current level U.S. consumers have lost their function as a dependable
support for global demand. In contrast, major European economies are
strengthening and developments in France and Germany, which have dragged
down economic growth in the past years, are encouraging. In addition, the
Japanese economy is growing at the fastest pace in three years, driven by
record-low unemployment and continuing the longest expansion since the end
of World War II. Non-Japan Asia complements the picture of a strong global
economy, as the region will continue to grow at a robust pace, driven by
resilient growth in China and India. Finally, prospects for Latin America
are more optimistic, as the region enters the fifth year of solid growth
supported by high commodity prices and strong domestic demand. |
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Mexican
outlook stagnates whereas Brazilian and Chilean forecasts continue to
improve
Consensus
Forecast panellists revised upwards the outlook for Latin American output
growth this year for the fourth consecutive month. This month,
participants raised their forecast by 0.1 percentage points to the current
4.6%. Upward revisions for five of the seven major economies lifted the
regional growth forecast. Simultaneously, Mexico’s growth forecast was
revised down a notch while Argentina’s outlook remained unchanged over
last month. Brazil and Chile experienced the strongest changes, as
panellists raised their GDP growth forecast for both countries by 0.3
percentage points. According to the Consensus, the Brazilian economy will
expand 4.2% this year. In March,
the
government
introduced
a new
methodology for measuring national accounts that revealed a
better-than-estimated performance of the Brazilian economy during the last
years. As a result, Consensus Forecast participants have been revising
their GDP growth forecasts for this year upwards. In the case of Chile,
Consensus Forecast participants expect the economy to grow 5.4% this year,
which is up 0.3 percentage points from the 5.1% growth expected last
month. First quarter figures reveal that the Chilean economy is
recovering from last year’s slump and is expanding at a strong pace,
backed by robust domestic demand. In addition, copper prices remain high
and should help limit the impact of the expected deceleration in the
external sector. In the same line, Colombia, Peru and Venezuela
experienced an upward revision of 0.1 percentage points on their GDP
growth forecast. On the other hand, Mexico’s GDP growth forecast was
revised downwards by 0.1 percentage points for the second consecutive
month to the current 3.4% projection, thus returning to the same growth
rate estimated at the beginning of the year. The Mexican economic outlook
is not improving due to disappointing growth figures for the first
quarter. In addition, the U.S. economy is not yet showing signs of a
recovery, which will continue to hurt Mexico’s export growth and its
important manufacturing sector.
Inflation forecast improves a notch
The Latin
American inflation forecast was revised down a notch from 5.2% expected
last month to the current 5.1%. The inflation forecast had been stable at
5.2% for three consecutive months. Downward revisions for three major
economies (Argentina, Brazil and Venezuela) more than offset upward
revisions in three other economies (Chile, Colombia and Peru).
Simultaneously, the inflation forecast for Mexico remained unchanged at
3.7% for this year. Even though inflationary
pressures in Mexico seem to have subsided in the recent past, inflation
remains persistently above the Central Bank’s monetary policy target.
On 25
May, the Central Bank decided to leave the benchmark rate unchanged at
7.25%. However, monetary authorities stated that they have adopted a
“restrictive bias” and warned that they would be ready to raise rates
again to prevent inflation from quickening. Once again,
Colombia
experienced the strongest upward revision, as Consensus forecast
panellists lifted their inflation forecast by 0.2 percentage points to the
current 4.8%. Last year’s strong growth and better GDP prospects for this
year are fuelling inflationary expectations despite
the constant
appreciation of the peso against the US dollar.
As a result, panellists expect the Central Bank of Colombia to continue
with the tightening cycle. Chile and Peru experienced an upward revision
of 0.1 percentage points to their inflation forecasts. In contrast,
Venezuela experienced the strongest downward revision.
Consensus
Forecast panellists have lowered the inflation forecast for Venezuela by
0.3 percentage points to the current 18.2% estimate. Last month,
participants lowered the inflation forecast for Venezuela by 0.4
percentage points. Apparently, participants expect the recently
introduced anti-inflationary policies to have some mitigating effect on
price increases.
In March,
the Venezuelan government cut the value added tax (VAT) from 14% to 11% on
all consumer goods, which resulted in the sharpest monthly drop in
consumer prices in decades. The government may opt for another VAT cut in
July. These policies, however, will only have a short-term effect, as the
government continues to fuel the economy by passing on the windfall
profits obtained in the oil sector. In fact, Venezuela’s inflation has
already resumed the upward trend in place since May last year, which was
briefly interrupted in March when the VAT cut took place. |
