Is Latin America’s economic crisis over?

John Gallagher reports from Buenos Aires.

As we head into the last quarter of 2017, travel retail suppliers and operators in Latin America are asking if the tentative economic recovery of the first half year is here to stay.

Brazil

The fall in raw material prices in early 2014 and Brazil’s massive Lavajato corruption scandal brought about the country’s worst economic downturn since record-keeping began. Brazil’s huge influence in South America led to economic problems in neighboring countries, eight successive quarters of GDP declines in 2015 and 2016, and the arrests of leading businessmen and politicians. Consumer and business confidence hit rock bottom for the last three years. But the Brazilian government announced a 0.2 % GDP growth in the second quarter of 2017, which followed 0.3% growth in Q1 – with analysts forecasting GDP growth of 0.4% for the full year, increasing to 2.0% in 2018 – so the outlook may finally be  changing.

Recovery may be slow but there are grounds for optimism; although some question whether the incipient recovery is due to solid government economic planning or that the situation had gotten so bad it couldn’t get any worse. Inflation is at its lowest level since 1999 and analysts forecast inflation will close the year at 3.7% and remain close to 4% for 2018.

The value of the Brazilian Real is forecast to remain between 3.30 and 3.40 against the U.S. Dollar for the next 18 months. A stable Real is beneficial for the travel retail business, as seen by the recovery in the Uruguayan and Paraguayan border business. But the corruption scandals have not totally disappeared, even as Brazil President Michel Temer survived an impeachment attempt in August — and his advisors worry that further charges may be pressed against him. The unstable political environment is likely to remain at least until the 2018 Presidential elections – the big question is will the Brazilian electorate vote for change.

Argentina

Argentina is also showing signs of a timid recovery. GDP growth for 2017 is expected to be around 2.8% this year, rising to 3.5% in 2018. After more than eighteen months under the Macri administration, inflation is finally falling. Analysts expect a final year figure between 20% and 24%, which may sound high for Europeans and North Americans but is encouraging compared to last year’s 40%. Tax revenues are running ahead of inflation for the first time since Macri came to power. Macri’s Cambiemos party posted encouraging results in the primary elections prior to the mid-term elections to be held at the end of October, and analysts believe Macri will gain enough to carry out his economic program in the second half of his legislature. Underlying problems such as fiscal deficit and the relative value of the Argentine Peso vs the U.S. Dollar remain.

But if he is successful in attracting foreign investment and creating jobs in the private sector, he is favored to repeat his victory in the 2019 presidential elections.

Pacific coast

The major Pacific coast economies are forecast to show economic growth for 2017 and expansion in 2018. Chile should finish the year with 1.5% growth, increasing to 2.6% in 2018; but many companies are awaiting November’s presidential election before committing to further investment.

Meanwhile, the Pedro Pablo Kuczynski administration is steering Peru to 2.7% growth this year, with 4.0% growth forecast for 2018. Colombia will also enjoy more prosperity this year due to increased private investment and government spending; analysts expect 1.9% growth this year and 2.8% in 2018.

Air traffic growth follows recovery

As the regional economy recuperates, airports are posting solid traffic increases.

Santiago de Chile showed an impressive 16.6% increase for the first seven months of the year as new airlines commence service, and Lima in Peru enjoyed a buoyant start to the year with traffic up by 8.6%.

Argentina is also seeing solid domestic and international air traffic growth, up 15% between January and July. With several low cost airlines beginning operations in Q4, strong numbers are forecast to continue for several months.

Domestic air traffic in Brazil is growing again after a challenging 2 to 3 years. Sao Paulo Guarulhos, Rio de Janeiro Galeão, Viracopos and Brasilia all delivered positive growth in the second quarter of the year. Continued growth over the last 4 months of the year would confirm that the crisis is coming to an end.

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