Goldman, Credit Suisse Forecast Recession for Latin America

(Bloomberg) -- The accelerating coronavirus pandemic will throw Latin America’s largest economies into recession this year, as slowing trade, plunging tourism and lock-down protocols undercut activity.

Economists from Credit Suisse Group AG to Goldman Sachs Group Inc. are sharply reducing their estimates for the region. Goldman Sachs slashed its forecast for growth in Latin America this year and now expects a contraction of 1.2%. Credit Suisse now sees a region wide recession of 1.5%. Bank of America economists forecast the region will contract 1.6% in a Thursday note.

Brazil, the region’s top economy, is now set to fall after struggling to recover from its 2016 downturn.

“Recession seems unavoidable,” JPMorgan Chase & Co. economists Cassiana Fernandez and Vinicius Moreira wrote in a report dated Wednesday, lowering their estimate for Brazil’s gross domestic product to a 1% contraction from 1.6% growth. The fallout from coronavirus is spreading faster than anticipated around the world, they said. “We are likely to see lower spending across the board given the social distancing measures that are starting to be put in place,” they said.

Goldman Sachs, which previously expected Brazil to grow 1.5% this year, is now seeing a 0.9% contraction as withering global demand hobbles prices for Brazil’s and the region’s commodities.

Perfect Storm

Mexico may now suffer the deepest recession among major Latin American economies as the coronavirus pandemic hits the nation particularly hard due to its strong ties to the U.S., where recession is also looming, economists at Bank of America, Credit Suisse and Barclays said.

Bank of America economist Carlos Capistran issued one of the most bearish calls for Mexico so far, seeing a 4.5% contraction in 2020.

“Despite the large revision to our GDP growth forecast, we continue to see downside risks to it, as Mexico could be hit directly by the coronavirus, forcing a large shutdown of the economy,” Capistran said.

Credit Suisse economist Alonso Cervera wrote in a report that Mexico’s economy will probably contract 4% this year. Barclays recently slashed its estimate to a 2% reduction.

Mexico was already on weak footing after a slump in investment helped trigger a slight contraction during President Andres Manuel Lopez Obrador’s first year in office. Now, Mexico is “facing strong headwinds from external demand, which had been its main engine of growth, supply disruptions and sharply lower oil prices. The perfect storm,” Cervera said in a text message chat from his home office.

Barclays economist Marco Oviedo sees significant downside risks to his Mexico outlook and a long, slow recovery following a collapse in domestic investment last year. Business sentiment will now likely sink into a longer-suffering slump that could be amplified by more policy missteps seen as hostile to private investment, Oviedo said in a note.

Tourism could be hammered hard in Mexico as Americans and Europeans stay home, Oviedo said, adding the “shock could be stronger” if there is a coronavirus outbreak at the tourist hubs of Cancun and Los Cabos.

Goldman Sachs economists led by Alberto Ramos see Argentina’s economy contracting 2.5% this year and its central bank could “aggressively” cut interest rates to help finance more government spending. Ramos sees central banks across the region cutting more boldly under the cover of the U.S. Federal Reserve’s big moves even if that risks further currency weakness.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.