The next domino to fall: Latin America
Greece needs a bailout and China’s stock market is in meltdown mode. But the global economy has another rising red flag: Latin America.
Every major Latin American economy is slowing down or shrinking. The World Bank predicts this will be Latin America’s worst year of growth since the financial crisis. As if that’s not dire enough, the world’s two worst performing stock markets are in the region as well.
And things could get even uglier later this year for Latin America, a region which is double the economic size of India.
“The weakness in Latin America is reflecting the weaker global outlook,” says Win Thin, senior economist at Brown Brothers Harriman.
The ‘most vulnerable’: After years of checkered progress, Latin America is the “most vulnerable” region to China’s sputtering economy and market meltdown, experts say. It’s become a trade battleground area between the United States and China.
China is the biggest trade partner to many Latin countries, but the U.S. has tried to reassert its presence in recent months. Still, China’s sluggish growth is pulling Latin America down with it.
“We’re expecting very, very weak growth,” says Eugenio Aleman, senior economist at Wells Fargo Securities. “Brazil is in bad shape. Argentina isn’t much better. Chile has slowed down to a trickle…Peru is slowing down considerably.”
That’s just the beginning. Venezuela is arguably the world’s worst economy with sky-high inflation. Next door, Colombia has the world’s worst stock market this year. Its index is down 13% so far this year. The second worst is Peru, down 12.5%. By comparison, America’s S&P 500 is flat this year. (Argentina has the world’s best stock market, but that’s more a reflection of politics than economics).
While many are focused on Greece right now, “a deeper downturn in China remains the key external risk for Latin America,” says Neil Shearing, chief emerging market economist at Capital Economics.
The big problem: The three “C’s” are weighing down Latin America: China, commodities, and currency.
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