Weak global recovery to expose sharp country divisions (Q1 10)

The recovery in Latin America’s resurgent economy is likely to stay strong for a quarter or two longer. But we expect growth to fade over the second half of this year and into 2011 as the global rebound falters, commodity prices fall further and a rise in investor risk aversion causes capital inflows to moderate. This in turn is likely to open up sharp divisions between the region’s better managed economies and its laggards. We expect GDP growth in Brazil to slow from around 5% this year to 3% in 2011 – impressive given the weak global backdrop, but still below consensus. At the other end of the scale, the outlook for Venezuela and Argentina remains bleak. If commodity prices fall as far as we expect, the fragile fiscal positions of both countries are likely to come under the spotlight.