LATAM’s Credit Outlook is Bleak, Aside From in Mexico, Colombia

Weak consumer demand and low commodity prices seem to be dealing a heavy blow to the majority of Latin American economies. The latest estimation by international ratings agency Fitch …

Weak consumer demand and low commodity prices seem to be dealing a heavy blow to the majority of Latin American economies. The latest estimation by international ratings agency Fitch says corporate credit quality in the region appears unlikely to be reversing anytime soon.

Downgrades will likely outpace upgrades, Fitch warned, pointing to decreased cash flow and the tightening credit market.

Thanks to economic reforms and rising foreign investment, Mexico is predicted to see “upgrades to outpace downgrades.”

According to its report, one in two firms in Brazil, the region’s largest economy, are facing the prospect of having ratings downgraded in 2015. The outlook is similar for the emerging economies of Chile and Peru.

“Latin America corporate credit quality has been weakening during the past two years. A reversal of this trend is not on the horizon for 2015,” said Joe Bormann, Managing Director at Fitch.

Fitch expects inflation to remain high in Brazil. It is one of the key causes of economic trouble in Latin America’s biggest economy.

In Chile, macroeconomic conditions remain challenging and domestic demand should be subdued. Fitch said it does not expect Chile’s elevated energy costs to decline in the near term. Another concern is that tax changes are likely to exert more pressure on corporate cash flow.

“Peruvian corporates continue to adjust to slower growth than projected for 2014. The weak economic performance in 2014 has sapped the spending power of middle and lower income Peruvian consumers,” the report said.

Sign up for our Nearshore Americas newsletter:

According to Fitch, the Colombian credit environment is positive because of its strong economic fundamentals: “Liquidity is strong and rollover risk is low. The near-term outlook for Colombian corporates is stable.”

Moreover, unemployment is trending lower in Colombia, with consumer and industrial confidence rising by the day.

Tags