Glum economy may impact Latin American elections

Outlook

Although Argentina and Brazil are likely to come out of recession this year, growth there and in other Latin American countries is likely to disappoint, which voters may punish as they go to the polls. Only Paraguay’s Colorado Party looks largely secure, owing to its dominant position.

On the other hand, inflation is muted in much of the region, allowing for recent rate cuts in Brazil and elsewhere that could gradually help to stimulate growth. Only Argentina and Venezuela still face double- or, in Venezuela’s case, triple-digit inflation.

The greatest uncertainty surrounds Venezuela, both in terms of a looming economic debacle and in terms of forthcoming elections this year and next, which may face delays or outright suspension.

Impacts

• In Argentina, the governing coalition will gain seats but will remain far from a majority, requiring tough negotiations in Congress.
• Chile’s ruling Nueva Mayoria will almost certainly lose the November elections and looks likely to break up thereafter.
• Corruption scandals plague the governments of Mexico and Brazil, although the outcome of next year’s elections is far from clear.
• Unemployment and uncertainty make it unlikely that consumers will drive strong growth, even if interest rates fall.