Latin America’s top two economies are moving in opposite directions, with export and investment growth propelling Mexico while Brazil is set to fall into recession, according to JPMorgan Chase & Co.
“Mexico is the silver lining in Latin America as it remains on a strong footing, on the back of resilient external demand, domestic consumption, and the catching up in fixed investment,” JPMorgan economists including Cassiana Fernandez and Gabriel Lozano wrote in a report published Monday.
In contrast, “Brazil, which was one of the first economies to tighten policy, will also be among the first to see a recession,” the economists wrote.
Analysts became more optimistic about the Mexican economy after Tesla Inc. announced the construction of a new factory in Monterrey, an industrial city near the border with Texas, that’s likely to bring in billions of dollars of investment. Meanwhile, Brazil’s worse-than-expected end to 2022, when the economy shrank 0.2% during the final quarter, raised concerns that high interest rates will be a big drag on growth this year.
The economists don’t see Brazil’s central bank cutting rates “anytime soon,” unless there’s a deeper fall in economic activity.
“Looking ahead, we expect some economic recovery during the year – aided by a more solid external outlook particularly with China re-opening strength – but with growth remaining below potential up until the end of 2024,” they wrote.
On Monday, Mexico’s statistics institute reported that gross fixed investment grew 9.4% in December compared to the previous year, the fastest expansion since Sept. 2021. Shipments of vehicles, one of Mexico’s main exporting products, grew over 14% in February to 230,484 units, the institute said.
Source: Andrew Rosati, Bloomberg