Antonio’s Analysis: Q3 & Q4 2023 Global Trade Market Outlooks

Global trade was strong in the first half of 2023, as Latin America economies were relatively resilient in the face of market volatility. However, analysts are uncertain as to which way the trading market will turn as global economic outlooks become more clouded.

I wanted to take some time to share with you some of the trends and news I am watching to better gauge what the international trading market could look like in Q3 and Q4 2023.

While we saw inflation reach record levels last year, inflation rates softened during the first half of 2023. Mexico’s annual inflation rate cooled to 5.84% in May 2023 from 7.91% in January 2023, while Brazil’s annual inflation rate cooled to 3.94% in May 2023 from 5.77% in January 2023.

Inflation remains above central bank targets in both Mexico and Brazil, but this downward trend indicates that we are seeing inflationary pressure cool within the region.

Elevated inflation rates impact fiscal policy and the cost of goods and services, making it important for me to monitor this metric. I will discuss how cooling inflation rates could impact interest rates later in this article.

To combat high inflation, we have seen central banks in Latin America’s largest economies enact strict monetary tightening cycles over the last couple of years.

At their most recent policy decision meetings in May 2023, central banks in both Mexico and Brazil opted to hold interest rates at nearly-record levels of 11.25% and 13.75%, respectively, breaking the cycle of rate increases.

While rate increases seem to be on-hold for now, many economists are calling for interest rates cuts following cooling inflation data. However, the Bank of Mexico signaled that we will likely see it hold interest rates for an extended period of time, with no rate cuts on the horizon. Brazil’s central bank is expected to hold interest rates in the near term, but analysts say that we could see the bank cut interest rates in Q3 2023.

Interest rates impact economic growth and consumer and business spending, which is why I am closely watching fiscal policy in Latin America.

Global economic concerns have been ongoing since 2022, with many economists expecting to see a slowdown in early 2023.

However, stronger-than-expected economic data in Q1 and Q2 2023 now has economists wondering when we will see a full global slowdown, and several revised their 2023 GDP outlooks upwards.

For example, in their April 2023 report, World Bank increased its global GDP growth rate outlook to 2.1%, up from a growth rate of 1.7% in their January 2023 report. IMF also raised their global GDP growth outlook in their April 2023 report to 2.8%. Despite being upgraded, these estimates are below 2022 global economic growth levels.

Latin American 2023 outlooks are similar to global outlooks. While growth is expected to be softer than it was last year, the resilience we saw in key Latin American countries during the first half of this year means we will not see growth slow as much as initially anticipated.

According to an April 2023 projection from the Economic Commission for Latin America and the Caribbean (ECLAC), South America’s economy will grow by 0.6% in 2023, and Central America and Mexico’s economy will grow by 2%. Falling commodity prices and slowing private consumption and investments are expected to impact economic growth within the region.

Economic growth can have a ripple effect on demand in all industries, including manufacturing. This is something I am closely watching to gauge impact on international trading, as we sometimes see manufacturers increase raw material imports to control production costs during times of softer economic growth.

Manufacturing activity was volatile throughout the last year, and we continue to see mixed manufacturing metrics within Latin America’s core economies.

Brazil’s manufacturing PMI – a metric which measures economic activity in the manufacturing sector – is currently falling, and we saw it reach the sixth consecutive period of contraction in April 2023. Mexico’s manufacturing PMI, on the other hand, has been stagnant over the last three months, but remains at a rate of expansion.

While analysts believe that manufacturing activity will slow in the remainder of 2023, we could see recent regional manufacturing investments boost activity. Nearshoring, for example, led to a record number of exports in Mexico due to increased manufacturing output. Mexico also recently released an investment plan for its southern industrial corridor, which is expected to bring more manufacturers to the country.

I will continue monitoring manufacturing activity and investment within the Latin American region to determine how the international trading market could be impacted.

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