Five tough years lie ahead for Latin American economies

The next five years are set to be difficult for Latin America, according to Tony Volpon, head of Emerging Markets Research Americas at Nomura Securities.

Tough years lie ahead for the region as a result of the headwinds of monetary policy normalization and lower commodity prices, said Volpon in speech at Canning House in London.

"Like we are already seeing, countries that saved for a rainy day will continue to do much better than those that conveniently convinced themselves that 10% growth in China was a permanent feature of the global economy," he said.

Volpon believes that during the next five years some of the Latin American countries facing the Pacific will do better than some of those facing the Atlantic.

"Countries such as Chile may well face some tough times owing to lower copper prices, but the policy framework is robust and the adjustments will be made. And Mexico will eventually benefit from last year's approval of several structural reforms and there should be a return to more robust growth despite the recent disappointment," he said.

THE TROUBLED THREE

Argentina, Brazil and Venezuela are all countries where things may well get worse before they get better as they are all ruled by left-wing governments that have greatly increased the size of their welfare states, said Volpon.

"They also have told their populations that the positive changes during the last decade are permanent and due to the domestic policies they've implemented. Now, faced with increasingly bad economic outcomes, all of them are, to some degree, blaming external factors, if not their political enemies," he said.

Of the three, Volpon sees the authorities in Brazil as the most willing to recognize that "painful adjustments" are now needed to face a much more challenging external environment. Brazilian authorities have already shown some progress on this front with monetary tightening despite an election year and greater emphasis on much-needed infrastructure investments, he said.

"In Argentina, there has also been a noticeable change in course, but there the political constraints are more binding and the economic problems much larger," said Volpon, who added that a crisis between now and the 2015 presidential elections cannot be ruled out.

And Venezuela is suffering from a real political crisis in which President Nicolás Maduro seems to be at the same time too weak to effectively govern and too strong to be pushed out of power, Volpon said. "Stalemate and further deterioration are the unfortunate likely result," he concluded.