Latin America Tag Clouds Analysis: Regional Risk Amid External Weakness

Over the past month, BMI‘s Latin America Country Risk content featured regular analysis on regional risks stemming from a weaker external environment. At least this is the initial conclusion of a tag cloud of article titles accumulated from late June to late July, when compared with a similar analysis of Latin American Country Risk article headlines back in January.

We also observe that compared with the beginning of the year, the words ‘continue’ and ‘remain’ feature more prominently in the Latin America Country Risk service’s article titles, indicating that several of the views previously expressed by BMI remain in place. This is particularly noteworthy after the word ‘sell-off’ has crept up in this month’s tag cloud, which is reassuring.

LatAm Country Risk Headlines, Tag Cloud. Jan 2013 (Left) and Jul 2013 (Right)

A Surprisingly Accurate Depiction

While it is difficult to capture the complex and widely diverging outlooks for a region as large as Latin America in the current global economic and financial environment, the latest tag cloud analysis of BMI‘s recent article headlines does justice to some of the more prominent themes currently at play. In particular, a weaker external environment is currently overshadowing the growth outlook for several economies in the region, and presents risks to even our below-consensus macroeconomic forecasts.

More specifically, we have long highlighted that weaker growth in China and falling demand for commodities, particularly industrial metals, will hurt the economies of Brazil, Chile and Peru the most. At the same time, we have long expressed our preference for more diversified economies, with promising domestic demand conditions and an ongoing reform drive. Moreover, the ongoing recovery in the US economy is particularly encouraging in this sense, and we retain our strategic preference for markets such as Colombia and Mexico.

These views have been in place since 2012, hence allowing for the regular creep up of ‘continue’ and ‘remain’ in BMI‘s article headlines for Latin American Country Risk content. However, a de-rating of growth expectations for much of the region and rising expectations of monetary policy normalisation in the US, have seen a lot of these themes play out with more vigour than we had expected, sending emerging markets into a tailspin in May and June.

What Lies Ahead?

Six months from now, this author would be willing to wager that the tag cloud, while not a whole lot different from its current make-up, would more prominently feature key words such as ‘political’ and ‘dilemma’, as policymakers across much of the region are confronted with increasingly challenging options. This is a growing challenge explored in our recent special report on emerging markets.

Moreover, with social unrest on the rise in Brazil, and the government already on track for sizeable public spending programmes – especially if you consider next year’s presidential election and FIFA World Cup – the word ‘fiscal’ and ‘risk’ are likely to grow larger and darker in the article tag cloud for Latin America’s Country Risk content.