Pessimism about Latin America creeps into Spanish companies with a presence in the region

2019 started with the wind in favor of Latin America: the International Monetary Fund provided for a 2% GDP expansion; the second economy in the region - Mexico - was beginning to emerge from Hurricane Trump with a new trade agreement that reprinted the NAFTA of 1994; and Brazil was finally glimpsing the light at the end of the tunnel after years of lethargy. The passing of the months, however, made a very different reality emerge, much closer to stagnation than to growth, and the exercise concluded with an expansion only one tenth above 0%. This gap between generally optimistic forecasts and a reality that ends up turning its back year after year has taken its toll on the collective imagination: for the first time in five years, the majority (67%) of Spanish entrepreneurs with a presence in the region come with Pessimism the situation of the Latin American economy, compared to 20% who believe that the global economic environment will positively affect and 13% who see things more or less the same as last year, according to a study by the IE business school presented this Wednesday at the Madrid Casa de América.

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• “Latin America has lost the train of industrial policy and innovation”
• The difficult art of forecasting
• The slowdown in investment in Mexico and social tension in Chile weighed the growth of Latin America
• The Peruvian economy resists the political crisis

The tables have been changed compared to 12 months ago, when 64% of Spanish businessmen expected an improvement in the vital signs of the Latin American economy. "The main causes of this economic stagnation must be sought in the commercial war between the US and China, in the problems with the global manufacturing sector and in the crisis of the Argentine economy," says Juan Carlos Martínez, professor at the business school that signs the Panorama of Spanish investment in Latin America 2020 . The outbreak of coronavirus originating in the Chinese province of Hubei is not yet included in the document, given that the field work -12 Ibex firms consulted, another 23 listed and fifty more unlisted but with a presence in Latin America- was earlier . The domestic market remains the main comparative advantage offered by the region for Spanish companies, according to 77% of respondents, with competitiveness (low labor costs), advantageous geographical location and free trade agreements lagging behind. On the opposite side, political instability remains the greatest risk.

However, the perspectives of Spanish firms are far from homogeneous. Their economic projections are still remarkably positive for a bunch of countries - Colombia, Peru, Panama, Costa Rica and the Dominican Republic - that score above 3.5 out of five (or seven out of 10). In the last two cases - Costa Rica and Panama - the rating even improves over last year, a rare announcement in the Ibero-American general still photo. Argentina (just over four out of 10) and Venezuela (0.82 out of 10), meanwhile, get the worst marks for the evolution of the future macroeconomic picture.

Mexico - the second largest Latin American economy, whose capital remains the preferred city to locate the central operations for the region - remains the favorite destination to invest: more than eight out of ten Spanish firms consulted have interests there, compared to the somewhat more than six out of 10 in Colombia and Peru, 57% of Brazil and 55% of Chile, which is heavily burdened by the social outbreak at the end of last year.

Better prospects in Spain than in Latin America for the first time

Despite the recognition that the economic outlook will be worse this year than the previous one, 65% of Spanish companies with interests in the subcontinent (76% in 2019) expect to increase their investments in the region, compared to 32% that will keep them ( 23% a year ago) and 3% (1% last year) that will reduce your exposure. By countries, the funds destined to grow your business will increase - mostly, through organic growth - in all the countries of the region except in four: Argentina, Nicaragua, El Salvador and Cuba.

For the first time since 2013, Spanish companies believe that their medium-term business in Latin America will be worse than in Spain: 58% in the case of large companies and 59% in SMEs, a situation that Martínez blames so much at the low levels of growth expected for most of the countries in the region such as the "prolongation of the growth cycle of the Spanish economy".