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FGV:  Good Outlook for Brazil, LatAm

Brazil, Chile and Colombia are in the recovery phase, while the outlook for Argentina, Ecuador and Venezuela remains unfavorable.


SAO PAULO —  A survey by Brazil's Fundação Getulio Vargas (FGV) business school and Germany's Institute for Economic Research Institute (Ifo) shows that the economic outlook for Latin America in the coming six months is good.

The Economic Climate Index (ECI) for July 2009 shows that Latin America is entering the recovery phase of the business cycle, with Brazil recording the second highest economic climate index in the region. The ECI rose to 4.0 points in July from 3.6 points in April. A breakdown of the findings shows that while the Present Situation Index (PSI) is still low, the Expectations Index (EI) increased to 5.4 from 4.6 points between April and July. We present some edited extracts from the report which was published on August 19, 2010. The full report with tables and an explanation of the methodology used can be obtained from the FGV press office (Instituto Brasileiro de Economia - IBRE) and is available in English, Portuguese and Spanish.

The FGV and Ifo researchers believe that this combination of a PSI in the bad assessment zone with the EI in the favorable zone indicates that the region is shifting from the recessive phase to the recovery phase of the business cycle. These results are aligning the Latin America cycle with the global cycle which has already been in the recovery phase since April 2009. As in Latin America, the PSI in the world remains unfavorable — 2.3 points — while the EI is favorable — 6.5 points.


Five Latin American countries analyzed in this report are in the quadrant of economic recovery (Brazil, Chile, Colombia, Mexico and Peru) in the July 2009 survey. It should be stressed that Brazil, Chile and Mexico were already in that position in April 2009. In addition, except in Mexico, all of them present an improvement in expectations. Peru registered the highest EI of 7.0, up from 3.8 points between April and July. In Brazil, the index rose to 6.6 from 5.4 points.

The assessment on the present situation is unfavorable in these five countries, as expected. However, in all countries except Mexico and Peru, the PSI increased between April and July. In Mexico, the index decreased to 1.3 from 1.7 point. In Peru, which had a large improvement in the EI, the PSI has left the favorable zone (PSI of 6.2) to the neutral zone (5.0 points).

Therefore, Peru is on the border of the cycle clock between the recovery and the expansion phase. After Peru, Brazil recorded the highest PSI (4.3 points). Six countries are in the recession phase (Argentina, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela). The PSI improved in four of those countries and worsened in Paraguay (to 1.6 from 3.2 points) and Uruguay (to 4.6 from 5.6 points). The EI improved in all countries except Paraguay. In Uruguay, despite the deterioration of the present situation, expectations indicate an improvement trend. The EI is still below 5.0 but increased to 4.6 from 1.0 point.


The economic climate index shows an improvement in Latin America although the situation varies among the countries. A group of countries stands out as being in the recovery phase (Brazil, Chile and Colombia) and recorded an increase in both the PSI and the EI. If the expectations are confirmed, it is possible that in the next survey Brazil will enter the expansion phase. Of the three its PSI is closest to 5.0. Uruguay and Peru show large variations in their indices which suggest a higher degree of uncertainty. Argentina, Ecuador and Venezuela have been in a very unfavorable situation since April 2008.

Is there a relationship between the perception about the effectiveness (suitability/sufficiency) of the economic policies adopted by governments to face the crisis and the phase of business cycle in those countries? The survey asked the experts if they believe the policies are fully sufficient, more or less sufficient or not sufficient. Comparing the responses on the policies and the cycle phases there is coincidence of recession phase and the perception of insufficient policies in Argentina, Bolivia, Ecuador, Paraguay and Venezuela. The coincidence of recovery phase and sufficient policies is recorded for Brazil and Chile. Uruguay is the only country in a recession phase and with sufficient policy. In the recovery phase and with insufficient policies are: Colombia, Mexico and Peru. In seven of 11 countries the results of the perception of policies and phases coincide.


Brazil, Chile and Mexico have improved their position in the ranking of economic climate, built from the average ECI of the last four quarters. Brazil surged to second position in the list of those with the highest ECI. Uruguay, Paraguay and Bolivia dropped in ranking. Peru kept the leadership and Ecuador, Argentina and Venezuela remained in the last positions.

A special survey was conducted to evaluate how the experts perceived the legal and administrative restrictions on foreign firms in their respective countries. Peru, Uruguay and Chile have been classified as countries without restrictions. Low restrictions have been attributed to Colombia, Brazil, Paraguay, Bolivia and Mexico. High restrictions were associated with Argentina, Venezuela and Ecuador.


Brazil is the best positioned in comparison with the other BRICS. China and Russia are on the list of countries with high restrictions. India, although classified in the group of low restrictions, had a lower score (4.4) than that of Brazil (5.1). The lower the score, the more restrictions the country shows.

John Fitzpatrick, a Scottish writer and consultant living in Sao Paulo, runs Celtic Comunicações. This article originally appeared on www.brazilpoliticalcomment.com.br. Republished with permission from the author. Fitzpatrick can be contacted at [email protected]

© John Fitzpatrick 2009 

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