Commodity Headwinds To Have Varying Fiscal Impacts
BMI View: Falling commodity prices will have varying impacts on the fiscal accounts of major Latin American countries, due to the wide range of export concentration, as well as differing levels of dependence on the export sector for public financing. We see the downsides risks most prevalent in Peru and Venezuela.
Shifting global dynamics will have a negative impact on a range of commodity prices over the coming years, resulting in increased headwinds for some Latin American economies. Indeed, with the normalisation of US monetary policy set to see gold price fall as demand for developed market assets picks up, our Asia team predicting a slowdown and reorientation of Chinese growth away from the investment-led model of recent years which will weigh on demand for copper, and our Oil & Gas team expecting global energy demand to be relatively well-supplied, leading to slipping prices for crude. Below we assess the susceptibility of the major economies in the region to declining commodity prices.
The fiscal impact for agriculture-focused exporters like Brazil and Argentina will be relatively minimal, thanks to well-diversified export baskets, low reliance on export revenues to fund fiscal accounts, and the fact that our Commodities team expects prices to average only slightly lower over the coming years.
More Diversified Export Sectors Better Positioned Latin America - Export Concentration Indices