Banco Latinoamericano de Comercio Exterior SA Bladex (NYSE:BLX) Q3 2019 Earnings Conference Call - Final Transcript

Oct 18, 2019 • 11:00 am ET

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Banco Latinoamericano de Comercio Exterior SA Bladex (NYSE:BLX) Q3 2019 Earnings Conference Call - Final Transcript

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Executive
N. Gabriel Tolchinsky

the Euro Area were cut by 0.1 to 1.2%; and China's economic growth was lowered by 0.1% to 6.1% from their last July report. Shockingly, the IMF expects slower economic growth in 90% of the world.

Given this macroeconomic context, we are -- once again, downgraded our economic and trade growth expectations for Latin America for 2019. Today, we are expecting only a 0.2% economic growth for the region, down from 0.6% at the end of the second quarter. And trade is expected to grow only 1%, down from 2.6%.

This tepid growth prospect masks significant disparities in economic performance between countries. Large countries like Mexico and Argentina are experiencing uncertainties and lower foreign investment flows, a key driver of economic growth. On the other hand, countries like Colombia and Brazil are showing a pick up in consumer demand that is supporting their economies, despite low commodity prices and weak international trade. In other words, slow or no growth from the developed world and the consequences of protectionist measures on trade and commodity prices are having an uneven impact on the region, with some countries better prepared to withstand the prevailing environment.

Brazil, the region's largest economy, is a bright spot amongst the three largest countries, with growth expectations of 0.8%. Mexico is expected to grow only 0.3% and Argentina is in an outright crisis, its economy expected to shrink 2.9%. We will discuss Argentina in more depth later in the call.

Although Brazil will grow significantly less than we expected at the beginning of the year, we are seeing some of the economic growth drivers stabilizing and starting to show some improvement. Both consumer demand and investment are showing signs of life. Both categories had sizable declines in 2015 and 2016, and have barely recovered since. With policies aimed at opening up the economy, such as an aggressive privatization program and the passage of pension reforms, we are optimistic on Brazilian economic growth, and business opportunities there.

We see medium term risks in Mexico, resulting from the prospect of potential interference in state-owned entities that for the last 20 years, were run independently and professionally. That said, we see three clear short-term priorities from the current administration, that should keep Mexico on the relatively good side of the rating agencies. One, is maintaining a small primary fiscal surplus. Two, continued support for PEMEX in restoring production; and three, keeping a good relationship with the U.S. Our base scenario, is that Mexico will not be downgraded to below investment grade until 2021. As such, we maintain a short-term profile of 10 months of average life in our Mexico portfolio.

The Andean Corridors stands out with Chile, Peru and Colombia, all exhibiting good growth prospects. Although growth expectations for both Chile and Peru have been downgraded because of lower commodity prices, expectations for economic growth in Colombia have improved, on the basis of macro stability and a regeneration of consumer demand. We are increasing exposure to these countries in our portfolio.