FOCUS - Brokers slash Latam growth forecasts
Reuters, Wednesday, September 09, 1998 at 20:36
By Michael Christie
MEXICO CITY, Sept 9 (Reuters) - The trickle of
international investment houses slashing Latin American growth
forecasts because of the widening Asian crisis has become a
torrent.
On Wednesday, Bear Stearns jumped on the bandwagon, saying
Russia's devaluation and the lack of U.S. or International
Monetary Fund (IMF) policies to contain the contagion meant
countries from Argentina to Mexico would feel the chill.
Bear Stearns analysts David Malpass and Jennifer Woolman
said they had slashed their expectations for the region's gross
domestic product expansion in 1999 to just 3.0 percent from an
original forecast of 4.5 percent.
But the firm's scenario was based on possibly precarious
assumptions -- U.S. growth will remain strong, Brazil will not
devalue and countries would not be adopting currency boards,
dollarization or price-rule monetary policies.
"If either of the first two assumptions is wrong, Latin
America's economies will perform significantly worse than we
are forecasting," Malpass and Woolman wrote.
The Bear Stearns downgrade of its growth estimates followed
a report by SG Cowen last Friday titled, "Taking an axe to our
1999 growth forecasts".
SG Cowen did just that, slashing its regional GDP growth
estimate for 1999 to 2.8 percent from nearly 4.0 percent.
The research house said its view was based on the
probability that global market turmoil meant commodity prices,
on which Latin America is dependent, would not recover any day
soon.
"The risk is on the downside as we are assuming that Latin
America is able to take Russia's botched devaluation as a fair
warning and will avoid a similar financial meltdown," analysts
Ronald Ratcliffe and Kimberly Bixel said.
"A devaluation in China and/or Hong Kong is the most
obvious external shock that would tip the balance against Latin
America," they added.
Meanwhile, the Economic Commission for Latin America and
the Caribbean (ECLAC), a United Nations body, predicted Latin
American growth in 1998 will be 3.0 percent, below the average
for the decade so far and down from 5.3 percent last year.
It too blamed the Asian financial crisis and also the
adverse effects of the El Nino climatic phenomenon, which
caused severe drought in many areas and heavy rain in others.
So far, most Latin American governments have acknowledged
that the global mayhem, by forcing them to jack up interest
rates to defend their currencies against devaluation pressures,
was likely to hit growth.
Panama has put a figure to the impact, cutting its official
projection for GDP growth this year to 4.0 percent from 5.0
percent originally.
By contrast, Argentine President Carlos Menem this week
insisted in a newspaper article that despite the world crisis,
the country's economy will grow more than six percent in 1998.
That was not the view of independent analysts.
Bear Stearns cuts its forecast for Argentine GDP growth
next year to 4.0 percent from 6.0 percent.
SG Cowen estimated Argentina's GDP would expand 4.5 percent
in 1998 and 3.3 percent in 1999. Its analysts noted Argentina
had spent three years preparing for crisis but that,
nevertheless, the country's growth prospects were most at risk
from a Chinese or Hong Kong devaluation.
Last week, Deutsche Securities said it had cut its estimate
for growth in Argentina's to 4.0 percent this year from 6.2
percent and for 1999 GDP growth to 3 percent from 4.5 percent.
But the country potentially facing the biggest impact is
Brazil, forced by investor jitters to hike interest rates last
week and to announce a new round of budget cuts this week but
stilll facing a steady seepage of dollars.
Bear Stearns halved its growth projections for 1999 to 2.0
percent from 4.0 percent while SG Cowen foresaw 1999 GDP growth
of just 1.8 percent.
mexicocity.newsroom@reuters.com))
Copyright 1998, Reuters News Service |
