The Ifo/FGV Economic Climate Index for Latin America (ECI) - developed in ..... comprised of two items of qualitative na
August 13th 2014
May 2015
Ifo/FGV Economic Climate Index for Latin America JANUARY/2015
75
APRIL/2015
71
Worsening economic climate in Latin America and improved in the World The Ifo/FGV Economic Climate Index for Latin America (ECI) - developed in partnership between the German Ifo Institute and the FGV taking as a data source the Ifo World Economic Survey (WES) – decreased by 5.3% between January and April de 2015, moving to 71 points from 75 points. The drop was led by the Expectations Index (EI), which dropped 11%, while the Present Situation (PSI) increased 3.4%. It is observed that all the indicators are in negative zone of economic climate and the worsening EI is a concern, to indicate a possible worsening in the outlook for the next six months.
Present Situation
140
58
60
Chart 1: Economic Climate Index for world and Latin America (in points) 110
120 100 80
Expectations
60
71
40 apr/04
92
oct/05
apr/07
oct/08
apr/10
oct/11
apr/13
oct/14
82 Economic Climate Index - Latin America
Economic Climate Index - World
At the global level, the improved ECI which went to 110 points from 106 points was led by the performance of the European Union, that reported an increased of 11.5%, with improvements in both the assessment about the current situation and expectations. All indicators in the region passed to the favorable zone. In the United States the indicators decreased but remain above the average of the last ten years and are in the favorable climate zone. China continues to record negative economic climate since October 2014, despite an increase of 7.1% of ECI between January and April, to 91 points. This result is associated with an increase of 20% in EI, suggesting that the economy may be resuming an upward trajectory. Among the BRICS, Brazil recorded the lowest ECI, while India is the only country in the group with favorable ECI. (See Chart 2) Despite the improvement in the World ECI, the forecast for growth in world product in 2015 has been revised down. It was 2.5%, in the Ifo Survey of April 2014, and rose to 2.3% in April 2015. For Latin America, growth dropped to 1.3% from 2.3% over the same period. Among the 11 countries that the Economic Survey for Latin
Economic Survey for Latin America Ifo/FGV May 2015
America analyzes in detail, none reported increased projection between the two surveys. For Brazil, the forecast changed to a decrease of 0.9% from a growth of 1.7%.
Chart 2: Economic Climate Index for Selected Countries (in points) 151 145 146
150
160
131 128 126 121 120 113 120 109 112 104 100 100 85
129 133 128
140
80
111 89 85 91
78 81
82 73 58
60
75
62 45
57 57 49
40 20 0 European Union
United States
Japan
Germany
France
United Kingdon
China
India oct/14
Russia
South Africa jan/15 apr/15
Brazil
The worsening in the economic performance of 10 countries in South America and Mexico coincides with the assessment of the economic climate. The ECI is in favorable level only in Chile (increase of 33% between January and April 2015); and in Paraguay (stable at 127 points). In Peru, the ECI decreases to the neutral from the favorable zone (100 points) and Uruguay remains in the neutral zone. Besides Chile, only Argentina recorded an increased ECI, although still remains in negative zone. In the interannual comparison, the economic climate only improves in Argentina (1.3%) and Chile (19%). In Brazil, all indicators recorded decrease between the last two surveys: ECI (-14%); PSI (-27%); and EI (-9.5%). In the interannual comparison the drop in PSI is 68% and 31% in ECI, but EI reports a small increase of 2.7%. However, as expectations remain unfavorable and pointing to a worsening of the situation in six months, the slight improvement compared to last April has a small weight in the assessment of outlook of economic growth. In the periods of April and October, it is conducted a questionnaire for experts to attribute grades 1 to 9 for the main problems that hinder economic growth in the country. Grades between 1 and 5 indicate that those topics are unimportant; the lower the number, the less relevant. Grades 5 to 9 refer to questions classified as important; the higher the number the more important the problem. The table below shows the main issues identified as relevant to the countries of Latin America and Brazil. Lack of international competitiveness is an obstacle to economic growth in Brazil and other Latin American countries. Lack of confidence in government policy, Inflation and Public Deficit gained relevance in Brazil in the last three years. Shortage of Skilled Labour is no longer relevant in the last survey. In this case, the result may be associated with importance given to the lack of demand, for the first time since April 2009. This matter is not described in the table, as well as unemployment, trade barriers to exports, foreign debt and lack of capital, all flagged as not relevant to Brazil.
2
Economic Survey for Latin America Ifo/FGV May 2015
LIMITING FACTORS TO ECONOMIC GROWTH Lack of
Lack of
Lack of skilled Public Latin confidence in Inflation international labour deficit America economic policy competitiveness Latin Latin Latin Latin Latin (without America America America America America Brazil) Brazil Brazil Brazil Brazil Brazil (without (without (without (without vs Brazil (without Brazil) 5.2 5.6 4.7 4.4 5.8 6.2
Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15
Brazil) 4.0 5.0 4.5 4.2 4.1 3.7
2.0 3.5 3.1 5.3 7.7 7.8
5.6 7.8 4.2 6.5 7.3 7.7
Brazil) 5.4 6.0 6.1 5.7 5.7 5.3
6.5 6.8 8.2 8.0 8.1 7.5
Brazil) 3.9 4.4 5.4 4.7 4.3 3.9
5.7 6.2 7.1 6.1 5.5 4.8
Brazil) 3.3 3.1 4.1 3.8 3.8 4.7
4.9 6.3 4.4 4.3 6.0 7.7
In short, the Economic Survey for Latin America shows that the outlook remains unfavorable for most countries. In Brazil for now there are no signs of recovery. Brazil remained in 10th place in the ranking of average ECI in the last four quarters, only better placed than Venezuela.
RANKING OF COUNTRIES Previous Position
Present Position
Country
3 1 2 4 5 7 6 8 9 10 11
1 2 3 4 5 6 7 8 9 10 11
Paraguay Peru Bolivia Colombia Uruguay Chile Mexico Ecuador Argentina Brazil Venezuela
Average ECI of the last 4 quarters Jan/15 122 123 122 119 102 86 95 84 61 60 20
Apr/15 121 115 110 106 100 91 89 71 61 55 20
3
Economic Survey for Latin America Ifo/FGV May 2015
APPENDIX PRESENT SITUATION INDEX (IN POINTS) PSI oct/12 jan/13 apr/13 jul/13 Latin America Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Paraguay Peru Uruguay Venezuela
102 72 140 98 154 122 120 100 60 136 120 52
98 78 116 92 172 118 100 100 122 154 144 20
102 60 114 94 164 112 140 114 158 152 110 20
90 88 114 66 140 106 120 100 154 140 130 20
oct/13 jan/14 apr/14 80 74 116 84 140 110 126 66 134 128 112 20
88 74 148 84 132 140 140 82 140 138 114 20
jul/14
oct/14
jan/15
apr/15
72 34 126 42 86 168 100 78 110 112 126 20
64 34 148 30 40 152 116 78 140 82 110 20
58 38 160 30 50 140 140 56 136 100 114 20
60 52 116 22 82 114 46 66 136 74 124 20
82 44 180 68 108 146 120 78 130 128 136 20
Average 10 years 99 97 103 113 131 124 96 87 105 142 143 62
EXPECTATIONS INDEX (IN POINTS) EI Latin America Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Paraguay Peru Uruguay Venezuela
oct/12 jan/13 apr/13 106 122 100 146 80 78 80 94 158 94 90 84
120 130 100 144 92 94 60 126 158 126 108 40
104 74 100 128 90 100 100 114 166 114 80 36
jul/13 86 56 100 84 36 138 80 112 136 82 80 20
oct/13 jan/14 apr/14 96 80 100 106 68 116 74 112 122 110 78 20
102 80 100 94 76 136 74 124 140 126 86 20
jul/14
98 106 100 74 82 128 80 118 130 140 82 20
96 80 100 68 92 94 46 126 100 112 82 20
oct/14 jan/15 apr/15 96 60 100 84 110 82 52 116 110 150 80 20
92 88 60 84 120 40 20 112 118 162 86 20
82 100 68 76 144 54 46 78 118 126 76 20
Average 10 years 100 85 89 109 107 102 77 101 112 120 117 67
ECONOMIC CLIMATE INDEX (IN POIN) ECI Latin America Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Paraguay Peru Uruguay Venezuela
oct/12 jan/13 apr/13 jul/13 104 97 120 122 117 100 100 97 109 115 105 68
109 104 108 118 132 106 80 113 140 140 126 30
103 67 107 111 127 106 120 114 162 133 95 28
88 72 107 75 88 122 100 106 145 111 105 20
oct/13 jan/14 apr/14 88 77 108 95 104 113 100 89 128 119 95 20
95 77 124 89 104 138 107 103 140 132 100 20
90 75 140 71 95 137 100 98 130 134 109 20
jul/14 84 57 113 55 89 131 73 102 105 112 104 20
oct/14 jan/15 apr/15 80 47 124 57 75 117 84 97 125 116 95 20
75 63 110 57 85 90 80 84 127 131 100 20
71 76 92 49 113 84 46 72 127 100 100 20
Average 10 years 100 91 96 111 119 113 86 94 109 131 130 64
4
Economic Survey for Latin America Ifo/FGV May 2015
Methodological Note The Latin America Economic Survey aims for monitoring and forecasting of economic trends, based on quarterly information supplied
by economy experts in their respective countries. The survey is - simultaneously - applied with the same methodology in all countries of the region, a method that allows the construction of an agile and comprehensive picture of the economic situation in countries and economic blocks. In April 2015, were consulted 1092 economic experts in 115 countries, being 140 in Latin America. The survey generates information of both qualitative and quantitative nature. The Economic Climate Index (ECI), is the synthesis indicator, comprised of two items of qualitative nature, the Present Situation Index (PSI) and the Expectations Index (EI), which deal, respectively, with the general economic situation in the country at the moment and for the upcoming six months. The individual responses are combined for each country without any weighting. For the average value of each index to be reached, 9 points are assigned to positive responses (+), 5 to indifferent responses (=) and 1 to negative responses (-). The ECI represents an arithmetic mean of the two indices that comprise it. The process of aggregating data for a particular group of countries or continent is made according to the relative share of foreign trade (exports + imports) in each country regarding the total in the region. According to specific criteria of the survey, the phase of the business cycle the country is at the moment is determined by a combination of
PSI and EI. When the two indices exceed the average limit of 5 points, the economy is in the "boom" phase. When both are below 5 points, there is recession. The phase of decrease occurs when the PSI is higher and EI is lower than 5 points. And the recovery phase with a higher EI and the PSI lower than 5 points. Indicators on this report are presented considering the value 5 as 100. Thus indicators above 100 are in the favorable zone and below 100 in the negative zone.
5