Economic Climate Index (ECI) of Latin America, developed between the German Ifo Institute from the University of Munich and Brazil’s Getúlio Vargas Foundation, FGV, increased to 5.6 points from 5.2 between October 2009 and January 2010, consolidating the trend of economic recovery in the region.
The evolution is mainly due to improved assessments on the present economic situation: on a scale of 1 to 9, the Present Situation Index (PSI) increased to 4.0 from 3.3 points.
Despite the significant increase for the second consecutive quarter, this index, which reflects assessments of experts about the present situation, shows the region’s economy has not yet returned to the situation before the international financial crisis: in July 2008 the PSI was 5.7 points.
The Expectations Index (EI) remained in a high level, changing to 7.1 from 7.0 points, signaling optimism of the experts about the economies in the region during the first half of 2010.
The recovery in Latin America follows on the global economy. From October 2009 to January 2010 the world ECI rose to 5.5 from 5.1 points, composed of the average between the PSI of 3.6 points and the IE of 7.4 points.
At a global level, therefore, the assessment of the present situation is less favorable than in Latin America, influenced by the slow progress in the US (2.5 points), Western Europe (2.6 points) and Japan (1.7 point).
The favorable compensation keeps coming from emerging markets, especially the Asian ones, such as India (PSI 6.3 points), South Korea (5.9 points) and China (5.2 points).
Of the 11 countries systematically monitored in Latin America, five are in the phase of economic boom (Argentina, Brazil, Chile, Peru and Uruguay) in the current edition of the survey. Of these, Brazil, Peru and Uruguay were already in this situation last October.
Bolivia, Colombia, Ecuador, Mexico and Paraguay are in the recovery phase, especially Ecuador, which was still in the recession zone last October. According to the survey criteria, Venezuela is the only country still in recession in the region, with a PSI 1.6 and IE 4.4 points.
In January 2010, the highest ECI in the region is from Brazil: 7.8 points. Other highlights are Chile (7.4 points), Peru (7.3) and Uruguay (7.0). Minor ECI are from Bolivia, Mexico (both 4.4 points) and Venezuela (3.0 points).
The assessments of the present situation are better in Brazil, the only country with PSI higher than 7.0 points (7.7). Next, come Uruguay and Chile, with 6.3 and 6.1 points respectively.
Expectations for the next six months are favorable in 10 of 11 countries, especially the four countries with EI above 8.0 points in January: Peru (8.8 points), Chile (8.6), Paraguay (8.3) and Colombia (8.2).
Venezuela, with 4.4 points, is the only country with an EI below 5 points (cut-off level between optimistic and pessimistic expectations). Despite still being relatively pessimistic, the expectations in this country are the most favorable recorded in the survey since April 2007 (4.5 points at that time).
The business climate ranking, classified by average ECI during the most recent four quarters, is still led by Peru, followed by Brazil.
The difference in points between the two countries is now just in the second decimal place. Mexico rose one place, to the seventh, after overtaking Bolivia. The other positions in the ranking remained unchanged in relation to October 2009.