Mexico to pace Latin American economy in 2015: Analysts

Updated: 2015-01-12 04:53

By PAUL WELITZKIN in New York(China Daily USA)

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Mexico will emerge as an economic beacon in Latin America this year while China will continue to further integrate its relationship with the region, according to observers from Prudential Financial Inc.

At the Prudential 2015 Global Economic and Retirement Outlook in New York on Jan 6, John Praveen, managing director and chief investment strategist at Prudential International Investment Advisers, said Mexico will ride the coattails of the US economic recovery this year.

"Mexico will probably be an oasis in Latin America in 2015," said Praveen. "The Mexican economy should be able to withstand lower oil prices as the country's other sectors will likely grow enough to offset that."

Cathy Hepworth, managing director and portfolio manager for Latin America at Prudential, agrees with that assessment. "Mexico has a much more diversified economy. It's more manufacturing and service based. As the US economy recovers, Mexico will benefit from that," she said.

Hepworth added that Mexico's economic policies are "predictable and market friendly" and this helps to instill confidence in the Mexican government and economy.

China has a growing presence in the region. Last week China hosted a forum with 33 Latin American and Caribbean countries. The world's second-largest economy pledged billions of dollars of investment in projects in the region and unveiled a goal of nearly doubling two-way trade to $500 billion over the next 10 years.

"Latin America's relationship with China will become more integrated over time as China seeks a steady supply of commodities and an export market for its products and services," said Hepworth.

She said trade with Argentina and Brazil will center on agriculture. Oil will be the key driver of the Venezuela-China relationship while China will turn to Peru for metals like copper.

China and Venezuela announced a new $20 billion financing agreement last week to help the country weather the fiscal storm as low oil prices continue to strangle the Venezuelan economy. China and Venezuela announced a new $20 billion financing agreement last week to help the country weather the fiscal storm.

"Venezuela will continue to lean heavily on China," said Hepworth. "Low oil prices make it very hard for Venezuela to pay the interest on its bonds. There is a feeling that China won't let Venezuela default on its bonds."

While falling crude prices harm Venezuela, the majority of the region is likely to experience benefits, Hepworth said. "Brazil will be helped by low oil prices as it is still a net importer of energy. The lower prices will also help the country deal with its inflation problem,' she said.

So why does Brazil have an inflation problem when slumping commodity prices appear to have tamed inflation in the rest of the world?

"There is too much demand stimulus in Brazil," said Hepworth. "The government has been very generous in its social spending and the public-sector banks have been very aggressive lenders."

"The central bank has been raising rates to control inflation," noted Praveen. On Jan 9 the central bank said it will do what it takes to slow inflation to its 4.5 percent target. Brazilian President Dilma Rousseff has appointed a new economic team and promised cuts in spending to slow inflation as she embarks on a second term.

Praveen also said that the scandal affecting state-run oil company Petróleo Brasileiro SA ( or Petrobas) has sapped some of Brazil's confidence. Last year prosecutors investigated a kickback scheme at Petrobras that resulted in charges being filed against 35 people, including executives from some of the nation's biggest construction firms. Authorities alleged that top Petrobas officials operated a kickback scheme on contracts worth over $4 billion, with money from the inflated contracts eventually being fed back to the governing Workers' party and other major parties for political campaigns.

"The Petrobas scandal must be resolved. Petrobas has a strategic role in Brazil and the company needs to address this matter so it can focus on developing the country's energy reserves," said Praveen.