Regional and global economies continued to show signs of slowing in September. Our main takeaway, based on market data and economic news, points towards regional economies falling into recession.

However, even with economies slowing, manufacturing is holding steady in key Latin American and South American countries – Brazil’s car production and Mexico’s capacity utilization both increased. Here are the top metrics we’re looking at this month.

*AS OF AUGUST 2019

Brazil’s manufacturing PMI increased in August, the strongest expansion of factory activity in five months. New orders in Brazil increased at the fastest level in over a year.

Mexico’s manufacturing PMI remained at a level of contraction in August, with new orders dropping for the third straight month.

*AS OF JUNE 2019

Capacity utilization remained relatively high in both Brazil and Mexico, but Brazil’s capacity utilization softened in June.

Below is a chart showing import levels of key Latin American countries Mexico, Brazil and Chile, as of July 2019. Imports in Mexico declined in July, while Brazil and Chile saw an increase in imports.

Terms of trade are the ratio of a country’s export prices to a country’s import prices. When terms of trade are over a level of 100, the prices of a country’s exports rise in comparison to the price of its imports. When terms of trade are under a level of 100, the prices of a country’s exports fall in comparison to the price of its imports.

Below is a chart showing terms of trade of key Latin American countries Mexico, Brazil and Chile, as of June 2019.

*AS OF JUNE 2019

With a potential economic slowdown on the horizon, Antonio Rosset, Commercial Director of the Leeco Steel Trading Team, suggests manufacturers consider importing materials to cut costs.

“During periods of economic slowdown, manufacturers often focus on controlling production costs to increase profit margin,” Antonio said. “Importing raw materials can help lower production costs while keeping the quality of the finished product high. Additionally, raw materials can often be found for a lower cost at sources abroad at a higher or comparable quality to what is available domestically.”

Antonio Rosset
Commercial Director

Across the globe and Latin America, recent economic news points to potential recessions.

A central bank indicator suggests Brazil’s economy may have slipped into recession in the second quarter. The bank’s IBC-Br economic activity index fell 0.13% in the second quarter after a 0.68% drop in the first quarter. If official GDP data backs up the IBC-Br index, Brazil will fall into recession for the first time since 2016.

Mexico narrowly avoided a recession in the first half of the year, with the economy expanding 0.1% in the second quarter. Primary economic activities declined 3.4% from the first quarter, and secondary economic activities were flat.

Bond markets in the U.S. and countries across Europe, including Germany and the U.K., have inverted yield curves, which may indicate an incoming global recession. However, experts say the yield curve needs to stay inverted for some time to be considered a strong recession indicator, and the length of time it takes for economic contraction to hit after an inverted yield curve can vary.

Interest rate cuts are expected across Latin America after weak economic growth. Experts say Mexico could see a quarter-point cut, while Brazil and Chile could see up to a half-point cut. Currently, inflation rates in Mexico, Brazil and Chile are either at or below their respective targets.