- Chile and Peru have the maximum fiscal buffers and among the lowest debt burdens in the region
- Elections should be largely credit-neutral, although they could detract from progress on competitiveness-boosting reforms
Sovereign creditworthiness in Latin America is expected to remain broadly stable in 2014, although some negative bias can be observed in the region's ratings, with six sovereigns on Negative and none on Positive Outlook, said Fitch Ratings in its 2014 Latin American Sovereign Outlook Report.
"Regional GDP growth is expected to recover moderately to 3.1% in 2014 from an estimated 2.6% in 2013, led primarily by a rebound in Mexico," said Shelly Shetty, Head of Fitch's Latin America Sovereign Group. "However, weaker growth in China, softer terms of trade, tighter financial conditions and lagging productivity improvements will constrain growth rates to levels below those seen in the past."
"Potential external shocks continue to represent the region's main downside risks, though strong international reserves, combined with flexible exchange rate regimes and steady foreign direct investment should mitigate these risks," added Shetty.
Growth rates are expected to vary significantly throughout the region. Brazil, Argentina, El Salvador, Jamaica and Venezuela are anticipated to underperform the regional average. Investment-grade Andean countries as well as Bolivia and Paraguay are expected to record above-average growth rates in 2014. Panama, while decelerating, should be the fastest-growing economy in the region.
Below-potential economic growth, easing of commodity price pressures and credible monetary regimes should lead inflation to remain well contained in most countries. On the other hand, moderate growth rates and less favorable terms of trade, combined with continued spending pressures and a busy election cycle could pressure fiscal accounts in some countries. Chile and Peru have the maximum fiscal buffers and among the lowest debt burdens in the region which places them in the best position to implement fiscal stimulus, if needed.
Despite a heavy election schedule for 2014, a significant departure from current policies is unlikely. As a result, elections should be largely credit-neutral, although they could detract from progress on competitiveness-boosting reforms.
Fitch's special report 2014 Outlook: Latin American Sovereigns - Stable Credit Outlook with Negative Bias is available here.