By Joseph A. Mann, Jr.
The U.S. economy continues to grow despite earlier concerns over the Fiscal Cliff and the sequester, while China, the other major world economy, has avoided a hard landing. This was the opinion of Kathryn Rooney Vera, Director and Partner of Macroeconomic Research at Bulltick Capital Markets at the recent Latin Trade CFO Forum, held in Miami on March 15.
Vera said the U.S. economy continues to move ahead, driven by the ongoing recovery in housing and increased consumer spending. A positive sign is auto sales, which bottomed at about 7.5 million per year at the peak of the recession and are now back to 14 million units per annum.
The director said Bulltick is projecting 2 percent GDP growth in the U.S. this year, even as the country's potential is 2.4 percent
Vera warned that the debt ceiling is the next challenge. Taken together with the Fiscal Cliff and sequester, these three issues are unsustainable, but U.S. politicians lack the will to make necessary changes. Nevertheless, "markets have been fine in seeing these things pushed down the road," she noted.
"For now, all is good." A double dip recession "is not even a question anymore" in the U.S., and could only happen if China collapsed, Europe dissolved, or some other major disaster occurred.
The Federal Reserve Bank's policy of buying $85 billion a month in U.S. Treasuries and mortgage-backed securities has created a virtuous cycle. At the same time this policy is pulling down interest rates on bonds across the board, so investors are turning to equities, pushing the S&P to new highs.
Vera expects a U.S. stock market correction, probably around midyear, of 2 percent to 5 percent - not 10 percent. "I don't see the fundamentals for pushing the S&P higher than 1,600," she added.
In Latin America, there are "a couple of stars and a couple of disappointments," Vera added. Mexico now outshines Brazil, while Venezuela is confronting serious decisions on economic policy in the wake of President Hugo Chávez's death.
In Latin America, the firm expects overall regional GDP growth of 4 percent, with Mexico expanding by 4 percent and Brazil by 3 percent (with a potential of 4 percent).
In Mexico, auto production (mostly for the U.S.) and strong exports will boost growth. "If you're bullish on the U.S., you should be on Mexico," she noted.
Brazil, however, is growing below its potential. The country is suffering from "a failure of the government growth model," the Bulltick executive said. The government has concentrated on consumption and domestic industry, when Brazilian industry has no competitive edge. With full employment, slow growth and rising inflation, "Brazil is in an environment of economic stagflation."
Vera added that China's economy should expand by 8 percent this year, up from 7.8 percent in 2012, while Europe's overall growth continues to be weak, but leaders there are choosing to stay the course.
Following the Bulltick outlook, Carmen Elena Carbonell, Corporate Director of Specialized Financial Services at CAF - Development Bank of Latin America, described how her Caracas-based organization has expanded in recent years from the Andean founder nations to include almost all of South America, members from Central America, as well as Mexico, Spain and Portugal.
The bank, which raises money on international capital markets, lends money and provides guarantees for a variety of projects to central governments, local governments, public and private companies, and financial institutions. Majority owned and managed by Latin American countries, the bank today is playing a much larger role in providing financing throughout the region.
Gustavo Reis, Senior International Economist at Bank of America Merrill Lynch, said that medium-term projections show global economic growth returning to the trend defined before the Great Recession. Currently it is at about 3.0 to 3.5 percent annually, compared to around 5 percent in the past.
For the United States, the bank is currently projecting annual GDP growth of 1.5 percent this year and 2.6 in 2014, and for China, 8.1 percent this year and 7.7 percent in 2014. Europe is expected to grow by a negative 0.5 percent this year and a positive 0.8 percent in 2014, while emerging markets should grow by 5.3 percent this year and 5.7 percent in 2014.