While Latin America's biggest economies, with the exception of Argentina, will continue to grow in 2019, companies in the region will face tighter credit conditions next year, according to a leading rating agency.
In a recent note to clients, Moody's said companies in the region will face tighter credit conditions in 2019, but may benefit from stable GDP growth. The agency’s Managing Director for the region Marianna Waltz said: "Commodity prices will remain at more stable levels, supporting companies' cash generation. Nevertheless, financing conditions will be tighter as interest rates rise and capital flow volatility increases."
The rating agency says challenging global conditions will likely increase costs of funding for Latin American issuers, impacting financial performance for some industries. However, most companies will benefit from strong balance sheets and stable domestic growth, with default rates remaining below those of other regions.
Political risks remain as new governments take office in Mexico and Brazil, while Argentina prepares for its own presidential election amid a challenging economic outlook. In Brazil, the new government's indication of continuity has improved market sentiment and reduced currency volatility.
But the exact direction of the new administration's economic policy still poses risks in 2019 and beyond. In Mexico, reduced policy predictability may erode investor confidence and exacerbate negative investment dynamics.
Trade tensions will re-shape trade flows and global supply chains with positive and negative credit effects across Latin America sectors. Agriculture commodity exporters may benefit from higher Chinese demand. On the other hand, mining companies may suffer with volatile prices and pressured demand.
